Wednesday, June 16, 2010

COBRA Bites Back

Unless Congress takes action soon, the federal COBRA health insurance subsidy will run out this month, Kaiser Health News writer Andrew Villegas pointed out recently. For people who were laid off from their jobs or lost health care coverage because their work hours were reduced (a "qualifying event" that makes them eligible for COBRA), the federal subsidy covers 65% of the cost of extending their employer-based coverage for 15 months. This subsidy is only available for employees whose qualifying event occurred before May 31, 2010, however, so people laid off in June are out of luck.

Those who have benefited from the COBRA subsidy since March 2009 also hit the 15-month limit this month, Villegas stated, and now must pay full price for their COBRA benefits for the remaining three months of COBRA coverage (in most cases, COBRA coverage only lasts 18 months).  

Plans offered by employers (and extended by COBRA to unemployed workers) usually provide better coverage than anything available on the individual health insurance market. COBRA can be very expensive, however, as cash-strapped former employees must pick up the full cost of a health plan that their employer used to subsidize, along with a 2% administrative fee. One study found that paying full price for COBRA coverage could consume 84% of a laid off worker's unemployment check, according to MarketWatch reporter Kristen Gerencher. The federal subsidy helps make COBRA an affordable option for laid-off employees and their families.

Like unemployment benefits, COBRA was designed as a stop-gap measure, providing temporary coverage while an employee looks for a new job that will provide more permanent, employer-sponsored health insurance (or pays well enough for the employee to purchase individual health insurance). That formula does not work too well in this stalled economy, however. Because good jobs are hard to find, many people rely on COBRA and unemployment benefits for far longer than they were intended.

A while ago, I wondered whether the federal government might use COBRA as a vehicle for health care reform. What if the federal subsidy for COBRA continued indefinitely, allowing eligible ex-employees to continue to receive health care from high-quality private plans, regardless of whether they found a new job or not?

A COBRA subsidy extension might not happen, however, either in the long- or short-term, because it is both expensive and politically volatile for Congress to pursue. Meanwhile, many long-term or newly unemployed people and their families will need to pay much more for health care coverage under COBRA or individual plans, end up in federal or state programs such as Medicaid or the Children's Health Insurance Program, or go without insurance altogether.