COBRA premium reduction

2008.11.25 - The physician


I’m going to divert from my usual ramblings and talk about the staggering (to me, at least) implications of the COBRA premium reduction.
First of all, what is COBRA?  From Wikipedia:  “The Consolidated Omnibus Budget Reconciliation Act of 1985… is a law passed by the U.S. Congress and signed by President Reagan that, among other things, mandates an insurance program giving some employees the ability to continue health insurance coverage after leaving employment.”  Basically it means that if your employer gives you access to health insurance coverage and you use it, then you are eligible to continue in that plan after you quit or get laid off.  Usually the employer’s been picking up a chunk of the premium that the employee has to start paying, but it’s still a fairly nice deal for most people as a bridge.

At least it was until the Great Recession hit. Like many other people, I didn’t anticipate being out of work for almost five months now.  I knew from day one I’d need COBRA, because until recently you had a 30 day window to opt in or out.  If you opted out, you were out – you couldn’t come back to COBRA after you left.  Finding independent health insurance is difficult even if you’re healthy; if you are sick, or (like me) you have a family with two small children (i.e. needing lots of medical attention in the form of shots, etc.) it becomes a real struggle to find affordable insurance.

So out of the stimulus act comes the COBRA premium reduction. You are an assistance eligible individual if you are qualified for COBRA and:

  1. Your COBRA period began between September 1, 2008 and December 31, 2009.
  2. You became eligible for COBRA as a result of a covered employee’s involuntary termination of employment in that time period and
  3. You elect COBRA coverage.

Cutting through the legalese, what does that mean? It means that if you qualify for COBRA, the government’s going to pick up 65% of your bill.  65% is a typical employer’s share of the premium payment for current employees, so it likely means that if you’re laid off your medical bills won’t go up much.

Forget politics, and forget whether this is prudent in the long term for America. That’s another post.  What this provides is a huge opportunity, and one worth considering seriously.  I’ve suddenly been told that I can keep my health insurance, which covers the great majority of my medical expenses, for a reasonable amount (about $400 per month) instead of an unreasonable amount ($1400).  The unintended social effect of this may be profound:  people like me who might have been otherwise inclined to scurry as fast as we could back to corporate employment for the sake of health care benefits may instead opt into independent contractor status in the short term.

I have to admit that I was anxious to get a “job” with benefits as quickly as I could once I realized my independent contractor lifestyle included an almost $1500 per month bill for health care (for a family of four). It’s not like that $1500 per month includes 100% of my costs, either – $25 copays, pharmacy copays and 10% (or more) shares of medical treatment add up.  Children’s immunization shots are pricey.  Even minor medical treatment can add hundreds to that premium payment of $1500 per month, but I’m grateful – without insurance the treatments would soar into five figures for even routine medical care.

If health reform becomes a reality, imagine what it would mean if everyone was entitled to $400 per month (or less) health care. Fear of striking out on your own as an entrepreneur would drop drastically.  People wouldn’t need to drop health insurance coverage to pay the rent.  Families would go to the doctor for routine preventative care in order to avoid later, more serious health problems.

I’m not suggesting that this COBRA premium reduction is a cure-all, because it isn’t. I know quite well that the whole doctor-insurance-company-patient triangle is rotten to the core.  Charges are flung about at random in hopes that some will stick and someone will pay them:  the insurance company, the government, the individual.  But it’s refreshing to see a change in the health care paradigm in this country.  As someone who has a (knock on wood) healthy family of four I had started to consider quite seriously dropping health insurance in favor of a catastrophic plan, and I’m glad – for once – that the government is doing something which will hopefully have a long term positive effect.  If people are confident that getting laid off won’t mean they can’t afford health insurance, they may be able to go out on their own or hold out for a decent job before settling for a position just for the sake of benefits.

photo credit: a.drian

16 comments

  • I just can't get over the health care costs in the US. I think it was our friend Plonkee (among others) that said it was ironic that the country that represents capitalism also very much discourages it because of poor health care coverage.

    • @Four Pillars:
      It was me, or at least I often say it.

      I'm surprised anyone that's single is self-employed in the States because of the healthcare / insurance issue. It's notable that most or all of the Yank pro-bloggers are married, and the majority of them are married to people who work in the public sector (school teacher, crime lab scientist,military, etc).

      Not really very pro-capitalism if no one can afford to be an entrepreneur.

  • $1500 a month is more than a nice mortgage payment where I'm from.. Ridiculous! I am not necessarily for socializing healthcare, but you are right something is definitely wrong with our system. I think you are 100% right that the reduction in COBRA premiums (as well as healthcare reform in general) will reignite the “animal spirit” of entrepreneurship in this country.. It's hard to take the leap when you can't keep the lights on due to health insurance..

  • i'm still employed, but i immedidately saw that the COBRA subsidy was HUGE. I worked oout my minimum expenses and income if i was laid off and having reduced payments for COBRA would make it nealry possible for me to spend very little of my own money (i already live frugally).

    I blame the cost of individual healthcare (especially for someone with a pre-existing condition) for not being able to remain self-employed.
    only problem is that it lasts for just 9 months.

  • If the policy is $1500 a month then its probably a pretty good policy without much of any deductible and low if any coinsurance. You can cut the cost significantly by looking for a high deductible plan with an HSA. My plan at work is an HSA and if I were laid off then the COBRA would be about $450 for me and my wife or $650 for a family of 4. But the traditional plan with no deductible or coinsurance is over $1500 for 4 people. So for a family of 4 that is a $850 / month difference. If you put just half that into an HSA it would cover a $5000 deductible.

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  • Do yo know how Cobra interprets “involuntary”? My husband was laid off but we are not sure they put it that way in his file. Basically he was told that his pay was cut to a quarter of what it was but they knew he couldn't accept that and they understood he was leaving.

    • @Laura: Companies have all the power in terms of deciding whether a termination was voluntary or involuntary. Companies can do exactly what was done to your husband, and his only real recourse is to go your state's department of labor and file a complaint. It's an underhanded and awful thing to do. I'd make sure I let everyone who does business with that company know how they treat their employees.

  • I too was laid off (in March) and initially declined COBRA due to the large payment amount. Now with the Stimulus Reduction, I am able to get my coverage (single) for $161 instead of $482 per month. And keep my doctors, prescription coverage, etc. WOW, big savings. This is a huge relief, as like many I am not sure when I will get my next position. So, thanks President Obama!!

  • I agree – our system is hosed. But it's not the fact that insurance costs are out of line – it's because our health industry is screwed up! (Not that I like insurance companies by the way.

    It perplexes me that people talk about “insurance” as the issue. It's the cost of care that's the issue. My son was in the hospital for an infection. Nearly $100k. But with insurance, $0! Oh, by the way, the “negotiated cost” between the insurance company and the hospital (I say “hospital” when I really mean hospital+doctors+medications+procedures+godknowswhatotherbloodsuckingpigs) was less than $10k. How does that work?

    If I didn't have insurance, I'm bankrupt. If I do have insurance, my costs are a fraction of what they are for a person who cannot afford insurance! Perverse?

    On to the main point – the stimulus provision for the COBRA subsidy is a god-send for literally millions of “laid-off” workers. Without it, we would have to settle for working at a job that wasn't our first, fifth, or even tenth choice (I'm talking fast food for a lot of former bankers and accountant types).

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  • Hello,
    I stumbled along your blog after I googled “Cobra premiums are too high”. In Feb 2009 I lost my job. Luckily my previous employer sponsored my Cobra until August. During that time the ARRA act was passed so I also enjoyed a gov't subsidy making my premiums affordable. My monthly premium is $400 w/o subsidy. I am single, fairly healthy but do go to the chiropractor twice a month. Therefore I have a pre-existing condition. During this time of reprive, I want to open my own real estate firm (I'm a real estate broker).Given the $400 I may have to pay in December, its daunting the thought of giving up my insurance. Also, my lease is up in November and my rent was raised 110%. So now I have to choose between healthcare or rent. Alot of people see universal healthcare as socialism. I disagree (not to make it political) but I find this blog's view refreshing. Not having to work for healthcare would stimulate entrepreneurship and allow someone like myself to not have to choose between rent and healthcare. Thanks!

  • Hello,
    I stumbled along your blog after I googled “Cobra premiums are too high”. In Feb 2009 I lost my job. Luckily my previous employer sponsored my Cobra until August. During that time the ARRA act was passed so I also enjoyed a gov't subsidy making my premiums affordable. My monthly premium is $400 w/o subsidy. I am single, fairly healthy but do go to the chiropractor twice a month. Therefore I have a pre-existing condition. During this time of reprive, I want to open my own real estate firm (I'm a real estate broker).Given the $400 I may have to pay in December, its daunting the thought of giving up my insurance. Also, my lease is up in November and my rent was raised 110%. So now I have to choose between healthcare or rent. Alot of people see universal healthcare as socialism. I disagree (not to make it political) but I find this blog's view refreshing. Not having to work for healthcare would stimulate entrepreneurship and allow someone like myself to not have to choose between rent and healthcare. Thanks!

  • Mark Loercher

    There are just some things that all humans, regardless of age, sex, race, or ethnicity should have. The ability to take care of ones body I believe is one of these things that humans should obtain collectively. What is supposed to be the greatest country in the world doesn't seem to care enough about its citizens to provide this with no questions asked. This doesn't sound or feel like the greatest country in the world to me, by any means.