Thursday, January 21, 2010

What is happening to COBRA?

History can surprise sometimes. It's too easy to assume particular laws must be Democrat or Republican. Take the Consolidated Omnibus Budget Reconciliation Act of 1985 as an example. Better known as COBRA, this provides a safety net for people to keep their group insurance plan in place after leaving employment. Employees can maintain health cover for up to eighteen months if they pay a subsidised premium of 35% of the original cost. The period of cover is extended if the employee is disabled or divorced. This is an excellent bridge between employer-provided health plans and private coverage at the full premium rate. During a period of unemployment, many could not afford to pick up the bill for full private coverage. They have to wait until a new employer provides cover or a sufficient pay check to pay the premium on private cover. Yet for all this law mandates protection for employees, it was signed into law by President Reagan.

Until the latest recession, this law worked well but, as unemployment began to rise and employers stopped hiring, a funding gap began to emerge. With little or no chance of finding alternative employment, too many people were looking at continuing monthly payments that were going to eat away all the family's savings and add to the already barely manageable debts. In some states, the 35% premium was more than the state's unemployment benefit. So, when the stimulus package was launched in March, it contained a subsidy representing nine months cover for those entitled to COBRA benefits. That means the subsidy disappears in December and several million of the unemployed will suddenly lose their COBRA benefits.

The expectation is that the Republicans will oppose any attempt to extend the subsidy program. The reasons are not hard to identify. The proposed reform of the healthcare industry motivates the Republicans to oppose anything connected with healthcare that might add to the already massive federal deficit. If the Democrats can maintain some degree of unity, it might be possible to force new legislation through to continue the subsidy, but this may not be a sufficient priority despite the still rising level of unemployment.

Health insurance is caught in a perfect political storm and instead of discussing issues with a bipartisan spirit, the political class is polarising. Despite the efforts of the White House to focus attention on the plight of the unemployed and their families, it seems likely that a wave of uninsured people will wash up and be left stranded on the beach as the nine month subsidy slowly ebbs away. Given the insurers have been increasing the premium rates on private plans over the last year, even those who remain employed are beginning to struggle.

Although the use of sites like this helps people find the still affordable policies, the percentage of uninsured adults will keep rising. Health insurance should be a basic right for everyone, but it has become a political football leaving people exposed. The hypocrisy of the politicians is ironic. All treatment at emergency rooms for the uninsured is partly paid out of federal funds and partly by the insured. It is impossible to avoid subsidising the healthcare for the unemployed. All that changes is the name on the account sourcing the subsidy.

© 2010 Ranjan Kumar

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