COBRA Proposal Could Counteract Loss of Coverage

In the economic stimulus package passed by two committees of the U.S. House of Representatives on Jan. 22 is a provision that could have a significant, long-range impact on health care if it's included in the final version of the bill approved by Congress.

The House Ways and Means Committee and the House Energy and Commerce Committee incorporated a proposal that would require the government to subsidize the cost of COBRA premiums for recently laid-off workers. Not only would the government pay 65 percent of the premium for up to 12 months, but it would also allow recently unemployed workers aged 55 and older, or those with at least 10 years of job tenure, to receive health insurance through COBRA until they find a new job that offers coverage or reach age 65. At that point, they could enroll in Medicare.

This provision has already elicited a strong reaction from employers. Helen Darling, president of the National Business Group on Health (NBGH), sent a letter to Rep. Charles Rangel (D-NY), chairman of the House Ways and Means Committee, complaining about the potential cost of the COBRA expansion. While NBGH supports temporary subsidies for COBRA premiums, she wrote, her group opposes the extension of COBRA until laid-off employees find a new job with insurance or become Medicare-eligible. She offered two reasons: the cost of retaining former employees in group plans increases as they grow older, and the administrative cost of doing so would mount over time, "at the expense of current employees and their employers."

Meanwhile, there's some doubt that even the temporary subsidy would have much impact on getting more people to accept COBRA coverage. According to a recent report by the Commonwealth Fund, only 9 percent of laid-off workers take up COBRA insurance, although two-thirds are eligible. The Commonwealth Fund points out that, for most people, this insurance is unaffordable, because it costs them four to six times what they were paying before they were laid off. To keep the premium the same, the subsidy would have to be 75 to 85 percent.

Another study by Stan Dorn, a researcher at the Urban Institute, showed that even with the subsidy proposed under the stimulus bill, COBRA coverage would be unaffordable for many. According to Dorn, only 12 to 15 percent of a group of dislocated workers eligible for a tax credit worth 65 percent of insurance premiums took advantage of it--although it's unclear whether they were paying a group rate, as do those in COBRA plans.

Nevertheless, it's possible that the COBRA subsidies would spur an increase in insurance coverage. Whether that--plus a Medicaid expansion that's also part of the bill--would do much to counterbalance the recession-fueled growth in the number of uninsured is unclear. But if it could even partly compensate for the coverage falloff, patients, insurers, and health care providers would benefit.