The COBRA Conundrum
April 23, 2020
Photo by Evan Walker
Millions of Americans have lost their health insurance along with their jobs. What should be done to help the newly uninsured and unemployed stay covered during this crisis?
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The Latest: Unemployed and Uninsured
No one knows yet exactly how many of the more than 25 million Americans who have lost their jobs due to COVID-19 have lost insurance along with them, but early estimates suggest it’s close to 10 million people. “And those numbers are just going to go up,” said MIT economist Gruber. “We’ve never seen such a dramatic increase in such a short period of time.”
Some of those people will be eligible for Medicaid, but many will not. Instead, they will likely have two options: COBRA, a program that lets workers stay on their employer insurance but requires them to pay the entire premium, and the exchanges set up under the Affordable Care Act.
Last week, House Democrats introduced the Worker Health Coverage Protection Act, which would fully cover COBRA. With the average annual premium for an employer plan running about $7,000, the bill would deliver huge relief for those eligible.
Gruber and others believe that beefing up existing ACA subsidies, such as by offering them to more people or making them more generous, is a more efficient and equitable use of federal dollars. A recent letter to Congressional leaders signed by 34 Democratic senators, and shared with Politico, mentioned ACA subsidies, but no details or legislation have followed.
The Evidence: Are COBRA Subsidies Effective?
In response to the last recession, Congress tucked a COBRA subsidy into the massive 2009 stimulus bill known as the American Recovery and Reinvestment Act (ARRA). Unlike the recently introduced House bill, the ARRA subsidy only paid for 65% of premiums, leaving laid-off workers to pay the rest.
According to a Mathematica evaluation, the ARRA subsidy only increased COBRA use by 15%. While nearly 70% of surveyed workers said they would hypothetically use the subsidy, only 35% actually did. When asked why they skipped the subsidy, workers gave two main reasons: They did not know it existed or COBRA was too pricey, even with the subsidy.
The people most likely to report using the subsidy were wealthier, healthier and more educated, suggesting that the subsidy failed to help those who needed it most.
The Evidence: COBRA Eligiblity and Awareness
Surprisingly little is known about workers’ eligibility and interest in COBRA, which makes estimating the impact of a subsidy difficult. While evaluating the ARRA subsidy, Mathematica researchers also gleaned valuable insights about laid-off workers’ COBRA eligibility and awareness.
A majority of eligible workers were confused about how COBRA would affect their health care costs.
The industries least likely to have COBRA-eligible workers were those now being hit hardest by COVID-19: retail and hospitality.
Workers with higher incomes and more education were also more likely to be eligible.
Tradeoffs: Three Paths to Subsidizing Coverage
The Idea: The federal government pays for some or all of people’s COBRA premiums.
- Lets people keep the doctors, deductibles, and every other aspect of their employer coverage.
- Employer plans tend to be more robust than ACA plans.
- The continuity COBRA provides can be especially valuable if someone knows they will return to their job soon or has a complex medical condition.
- Laid-off workers are not eligible for COBRA if they did not get insurance through work.
- Even some employees that had insurance through work are not covered by COBRA.
- Employer plans cost, on average, 25% more than a Gold Plan on the ACA, making COBRA a less efficient use of federal dollars.
Expand ACA Subsidies
The Idea: The federal government expands existing ACA subsidies, making them more generous and available to more people.
- ACA subsidies are income-based so they target aid to the people who need it.
- Covers millions of laid-off workers that COBRA does not.
- Builds on an existing federally funded program.
- Not everyone agrees the ACA subsidies need to be more generous since they are already income-based.
- Offering bigger subsidies to more people could ultimately cost the government more than a narrower COBRA subsidy.
- The exchanges are foreign to many used to employer insurance, and navigation assistance has been slashed by more than 80% since 2016.
- The ACA has a lot of political baggage.
Let People Choose
The Idea: Let people take whatever subsidy they are already eligible for on the ACA exchanges and apply it to their COBRA premium or an ACA plan.
- Makes use of the ACA’s existing federal funding and framework.
- Lets people choose what’s best for their circumstances.
- Does not provide any help to people not already eligible for ACA subsidies, such as those just above 400% of the federal poverty line.
- Leaves COBRA premiums still very expensive for many that prefer that option.
- Many people may not understand health insurance well enough to thoroughly compare these options.
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Current Legislative Updates:
House Democrats Introduce Bill to Help Workers Keep Job-Based Health Coverage During COVID-19 Crisis (House Education and Labor Committee)
Senate Democrats Want Health Care Expansion in Next Coronavirus Package (Adam Cancryn, Politico, 4/17/2020)
Select Research and Analysis on COBRA Subsidies:
Evaluation of the ARRA COBRA Subsidy (Jill Berk and Anu Rangarajan, Mathematica, 2015)
Impact of Premium Subsidies on the Take-up of Health Insurance: Evidence from the 2009 American Recovery and Reinvestment Act (Asako Moriya and Kosali Simon, NBER, 2015)
Jon Gruber, PhD, Ford Professor of Economics, MIT
Chris Holt, MA, Director of Health Care Policy, American Action Forum
Jill Berk, PhD, Deputy Director of Research and Evaluation, Mathematica
Music composed by Ty Citerman, with additional music from Blue Dot Sessions.
This episode was reported and produced by Leslie Walker, and it was mixed by Andrew Parrella.
Additional thanks to:
Linda Blumberg, Kate Bundorf, Sabrina Corlette, Kristine Grow, Maria Polyakova, John Sawyer, Tara Straw, Alina Salganicoff, and the Tradeoffs Advisory Board…
…and our stellar staff!