Federal Subsidy for Laid-Off Workers' Health Insurance

Abstract

Time-limited ARRA subsidies to laid-off workers for COBRA continuation coverage have substantially raised enrollment, even though layoffs sharply cut household income. The two largest data sets reviewed here showed average rises in take-up rates of 43 percent and 100 percent. However, rates varied widely across employers, and tax-subsidy claims to the IRS are thus far running much lower than expected. Coming closer to universal coverage for this population or for all Americans would require higher subsidy and possibly also a mandate to obtain coverage—two features that increase COBRA participation in a separate Massachusetts program for unemployed residents.

The text below is an excerpt from the complete document. Read the full report in PDF format.

Introduction

This brief assesses a temporary but important new federal subsidy for laid-off workers and dependents. Most working-age Americans and their families obtain health care coverage at the workplace and often lose it when they leave or lose their job.¹ The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) addressed this gap by requiring sizeable group health plans to continue job-based coverage for people losing eligibility.² COBRA enrollees have to pay the average cost of the employer plan, however, which deters enrollment.³ In February 2009, Congress reduced this barrier to COBRA take-up by enacting a new, temporary federal subsidy of 65 percent of premium for job losers under the American Recovery and Reinvestment Act (ARRA).⁴

The new subsidies were expected to have a large impact. In 2006, nearly 6 million people had COBRA coverage,⁵ and some 7 million were expected to benefit from ARRA starting in 2009.⁶ Since then, job separations and the unemployment rate have risen,⁷ so COBRA and the ARRA subsidy have become more important. The subsidies have already been extended, and Congress is now considering further extensions. Of course, the subsidies raise the broader question of COBRA's continued role up to and after the implementation of insurance reform unde the Patient Protection and Affordable Care Act (PPACA).

Based upon a literature scan, key informant interviews, and available data, this brief addresses key questions⁸: To what extent did subsidy increase take-up of COBRA coverage? Did subsidy reduce "adverse selection" of older, sicker people into COBRA coverage? Are yet higher subsidies or other measures needed to move closer to full enrollment? What are the implications for COBRA policy under health reform and for the implementation of health reform itself?

(End of excerpt. The full report is available in PDF format.)

Usage and reprints: Most publications may be downloaded free of charge from the web site and may be used and copies made for research, academic, policy or other non-commercial purposes. Proper attribution is required. Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact [email protected].

If you are unable to access or print the PDF document please contact us or call the Publications Office at (202) 261-5687.

Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute.