Unemployed Californians Dig Deeper as COBRA Subsidies Expire

Thousands of unemployed Californians who get help from the federal government to buy health insurance are starting to lose that help as federal stimulus money for COBRA begins to run out.

Recognizing that millions of Americans would lose jobs in the wrenching economy at the end of last year and this year, Congress included money in the American Recovery and Reinvestment Act to subsidize monthly health premiums through COBRA — the Consolidated Omnibus Budget Reconciliation Act. When it was passed in 1985, COBRA allowed involuntarily laid-off workers to continue their health coverage by assuming the premium payments formerly paid by their employers. Now, however, after almost a quarter century of health care inflation, monthly premiums for health insurance are often bigger than unemployment checks.

The economic stimulus package included funds to cover the cost of 65% of monthly health insurance premiums for nine months for newly unemployed workers.  The first recipients from nine months ago are now starting to lose their subsidies, and unless Congress extends the program, more subsidies will expire each month through fall of next year.

Health advocates worry the ranks of the uninsured will grow as a result.

“Congress needs to extend the COBRA subsidy as a much-needed measure in the present to protect recently laid-off workers and their families,” said Anthony Wright, executive director of Health Access, a California consumer advocacy organization. “This issue shows the dire need for health reform moving forward, so nobody loses health coverage when he or she switches jobs or becomes unemployed,” Wright said in a prepared statement.

Little Left Over in California

According to a survey released last week by Families USA, the average COBRA premium is $1,107 a month in California, about $720 of which is covered by the federal subsidy. Unemployment compensation amounts to an average of $1,349 a month, leaving little left over if unemployed Californians elect to retain health coverage, according to the survey.

“With health coverage as expensive as it is now and so many people out of work, these subsidies seem like a logical, necessary step,” said Kathleen Stoll, director of health policy for Families USA.

The Families USA survey gives a state-by-state assessment of costs for a family with and without the COBRA subsidy. California’s numbers are close to the national averages.

The subsidies also apply to people who qualify for Cal-COBRA, California’s “mini-COBRA” program for employees laid off from companies with fewer than 20 workers, according to officials at the California Department of Managed Health Care.

Accurate numbers of how many Californians have received the federal COBRA subsidy are difficult to come by. Since the economy began its precipitous slide in September 2008, 4.58 million California workers have filed initial claims for unemployment benefits, according to the U.S. Department of Labor.

Industry analysts estimate that close to 40% of newly unemployed people applied for the COBRA subsidies nationally.

A conservative estimate would be that more than 2.5 million of California’s new claims were eligible for federal subsidies, and if the 40% national estimate holds true in California, it’s a safe bet that hundreds of thousands — perhaps one million — Californians applied or will apply for the subsidy.

Nationally, the Congressional Budget Office and Joint Committee on Taxation estimated seven million adults and dependent children would receive the COBRA subsidy this year.

COBRA Subsidy Extensions Not in Reform Bills

Health care reform legislation in Congress does not deal with COBRA subsidies, but separate bills in both the House and Senate seek to extend the program. 

In the House, HR 3930 by Rep. Joe Sestak (D-Pa.) would extend the period of eligibility through June 2010, increase the maximum duration of the subsidy to 15 months and end all subsidies at the end of December 2010.

In the Senate, S 2730 by Sens. Sherrod Brown (D-Ohio) and Robert Casey (D-Pa.) includes the same provisions as the House bill and would also increase the federal subsidy from 65% of the premium to 75%, as well as expand eligibility to include employed people who lose health coverage because of involuntary reduction of hours.

‘Critical Bridge’ to Reform

Nobody’s lining up against the idea to extend COBRA subsidies, although there is some question about how to pay for it.

“We have not had anyone express opposition,” said Stoll of Families USA. “There is some hesitancy about where the money might come from, but we haven’t heard anyone speak out against the idea,” Stoll said.

The initial subsidies came from $25 billion specified as part of the $700 million federal stimulus package passed in February 2009.

“We see these subsidies as a critical bridge to health reform,” Stoll said. “Even when it passes, the changes that would make premiums affordable are still years away. People need help now and this is a good way to do it that’s already in place and working,” Stoll said.

Health care reform legislation in Congress could provide other alternatives for laid-off workers, including purchasing insurance through newly created marketplace exchanges. Low-income applicants could receive tax-credit subsidies to help pay premiums.

Related Topics

Insight Insurance