Many families may soon lose their health insurance as the subsidy provided by the stimulus bill expires. Workers can continue to receive coverage from their former employer’s insurance plan under a law known as COBRA – Consolidate Omnibus Budget Reconciliation Act. However, the employee must pay the entire cost of the plan which can be upwards of $1200 per month for a family.
For workers laid off between March and December of this year, the stimulus bill provided a 65% subsidy for as long as 9 months. Eligibility began to expire on Monday for those who took advantage of the program last March. Without an extension of the subsidy, we can expect to see an increasing number of these individuals drop off the insurance rolls. 
Sen. Sherrod Brown (D- Ohio) has introduced legislation to extend the subsidy eligibility through June 30, 2010 and reducing the unemployed worker’s co-pay to 25% down from the current 35%. The bill will likely enjoy wide bi-partisan support and is expected to pass shortly after the first of the year. This is the type of feel-good measure that is always popular during an election year and will be brought up frequently on the campaign trail.
While it is a lifeline to the unemployed, the true cost is not communicated to the American people. Over 7M people have taken advantage of the assistance this year. Without the subsidy, less than 9% of eligible individuals elected to continue the coverage. However, the subsidy has resulted in a significant increase in the take rate of COBRA coverage at an increased cost to businesses. Historical data shows that many who elect to take the COBRA coverage have health problems or family members with health problems. For them, maintaining coverage under COBRA despite the high cost is preferable to seeking coverage in the individual market, where the costs are equally high, but prior health conditions are often excluded. As a result of this adverse selection, the average health care costs of those electing COBRA coverage is about 50% higher than the cost of covered employees. Businesses incur $1.50 in health care expenses for every $1 received in premiums. Employees are going to have to share in this burden of an additional $30B annually through higher premiums and/or reduced benefits.
This is a classic example of a government program with benevolent intentions but which results in unintended (and undisclosed) consequences.
