Is The Cobra Continuation Premium Subsidy Working?

By Author: Norris Rios
Total Articles: 568
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Let's start with the good news. The Consolidated Omnibus Budget Reconciliation Act of 1985, thankfully reduced to the more memorable COBRA, has been a success. The intention was timely and its application not completely ineffective. When someone drops out of an employer group health plan, the cost of finding a replacement plan from a private insurer is often unaffordable during the period of unemployment. The individual has to wait until a new job is found. That either provides a new employer package or enough surplus in the pay to fund the premiums on a private plan. COBRA provides a bridge. Under normal circumstances this is for eighteen months, but it's extended if the individual is disabled or the reason for the loss of cover is divorce by the employing spouse. If the individual qualifies, he or she is entitled to the same insurance coverage on the terms paid by the employer. It's a matter of fact that the cost per head in a group plan is always significantly less than the premium charged by a private insurance company. The record shows that, on average, about 10% of the unemployed were able to keep their insurance cover ...
... in place while out of work.

Once the recession hit and unemployment spread, it became obvious to Washington that people were likely to be out of work for longer periods of time. There simply were no jobs waiting to be filled. The Obama administration therefore passed the American Recovery and Reinvestment Act of 2009 (ARRA) which provides a 65% subsidy for the COBRA premiums for up to nine months. This is funded by their former employers who claim the payments as a credit on their payroll tax. Accordingly, we come to the position where an already attractive premium rate is further subsidized by the federal government through the IRS. This actually boosted the number of people who were able to afford to maintain coverage during their unemployment. There's only one problem.

The ARRA subsidy is limited to a nine month period from the date the employee loses employment in qualifying circumstances. The bill was signed into law in March and so the first group of employees who qualified nine months ago will be losing their subsidy this December. As time passes, there will be a rolling wave of unemployed people dropping out of the subsidy program and, for the most part, losing their health coverage because the full COBRA premium is unaffordable. There has been talk of trying to put a new bill through the legislature to extend the period of subsidy to twelve months or beyond. But, in the midst of debating healthcare reform, there's no appetite for this issue as well. We therefore have an irony in that Washington's push to provide cover for the mass of some 50 million adult Americans without health insurance will, if successful, come too late to provide continuity of insurance for these unemployed. This is not to say that there's no cheap health insurance out there. For the uninsured with a little money, the obvious option is term insurance. For a few dollars a month, basic cover can be put in place for a limited number of treatments. At this time, some insurance is better than no insurance.