How Will The End of COBRA Subsidy Affect You?

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As the unemployment rate has grown, so has the percentage of Americans without health insurance. Most people in the U.S. are insured through their employers. Employer-based health care was originally devised during World War II to attract desirable employees when they weren't allowed to increase wages. However, it leaves those who lose their jobs in a bind. Although individual health insurance policies are available on the open market, many former employees are either unable to afford or ineligible for them due to cost or pre-existing conditions. COBRA (the Consolidated Omnibus Budget Reconciliation Act) was meant to rectify the situation. It allows former employees to remain on the same group health insurance plan as the company. Unfortunately, the business no longer subsidizes a portion of the cost, leaving the entire expense to the employee. In fact, the ex-employee even has to pay an additional 2% in administrative costs! A lot of unemployed people have chosen to forgo COBRA benefits and go uninsured as a result.

The COBRA subsidy was part of the economic stimulus package passed in February. It pays 65% of the premiums of COBRA for people who lost their jobs during this recession, between September of 2008 through the end of 2009. Only those people who were victims of layoffs or downsizing--fired without cause--are eligible. $25 billion was made available for this purpose in March, when registration first began. However, the funds are beginning to expire for initial recipients. The program lasts for only nine months, so those laid off later will be in the same predicament next year.

It seems as though the federal government may have underestimated the severity of the current recession. In a normal economic environment, it would be assumed that skilled workers would be able to find another position in a reasonable period of time. They may rely on COBRA for a few months, but are sure to find a similar position with group health insurance relatively soon. Things aren't working out that way; unemployment is over 10%, and there is speculation that this may be a so-called "jobless recovery". Many of the jobs that are available are low-paying, part-time positions that don't offer affordable health insurance to their employees. While individual health insurance plans can be cheaper than unsubsidized COBRA insurance, many people with pre-existing conditions have no options other than to stay on any group insurance.

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COBRA subsidies allow individuals and families some breathing room. On average, a monthly premium for COBRA health insurance without the subsidy costs over 80% of standard unemployment compensation ($1,111 per family). That barely allows enough money for food and shelter, never mind consumer spending on goods and services needed to help get the economy back on track. With the subsidy, it costs a more reasonable $722 each month.

There are two bills currently in Congress that seek to expand the COBRA subsidy. The House of Representatives bill would extend the current subsidy for another six months, for a total of 15 months. It would also allow people to take advantage of COBRA (with or without subsidies) for a total of two years, up from 18 months. Meanwhile, the Senate bill goes farther: it seeks to increase the subsidy to 75% of health insurance costs. Like the House, subsidies would be extended for six more months. Additionally, it would extend eligibility to people who are still working but are no longer eligible for their employer's health insurance due to their hours being cut back involuntarily. It seems unlikely that such a proposal will pass, since the federal government claims to not have enough money to cover the current 65% subsidy for any longer, much less increase it.

Unemployed individuals and families are struggling with health insurance expenses. In the long run, dropping insurance neglecting medical conditions to make ends meet can cost more money in the long run if their health deteriorates. Another issue is that those who drop COBRA coverage because they cannot afford the full premium are not able to rejoin in the event that the subsidy is extended. The U.S. economy has supposedly begun tip-toeing into recovery, when most unemployed Americans would prefer it to make like Usain Bolt and sprint.

Yamileth Medina
VitalOne Health Plans Direct, LLC.
www.vitalonehealth.com

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