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