COBRA – Stimulus or Bureaucracy?

Does Congress really think they are doing anyone a favor with the new COBRA subsidy provision in the recently enacted stimulus package? capitol_art_160_20080314161058

Why can’t they make it simple?

Conservatives who fear “socialized” medicine because it will make medicine more bureaucratic should acquaint themselves with COBRA regulations. Litigation over COBRA keeps lawyers and judges busy all over the country.  And what does any of it have to do with the delivery of care?

What is COBRA anyway?  The Consolidated Omnibus Budget Reconciliation Act of 1986 was one of those huge (thus the word omnibus) budget bills that included everything from tobacco price supports to fishing fees for foreign fishing vessels.   But it will be remembered because Title X (of XX) included provisions to permit those who lose their health insurance under an employer sponsored health plan to continue their health insurance under certain conditions (called qualifying events) and provided they pay the full cost of the coverage.

Because, the person without coverage is also usually without a job, and because the person must pay the full cost (actually 102%) of the coverage, very few people elect the coverage and those that do are more likely chronically ill individuals.  In insurance parlance, that’s called adverse selection.  The plan sponsor will usually end up paying more than they receive in premiums.

So what did Congress and President Obama do with COBRA? 

The new law makes the cost of COBRA premiums slightly more affordable.  Normally, a 65% discount would seem pretty attractive.  But the average cost of one of our family plans exceeds $1,000.  $350 – 450 per month for a family with one less breadwinner is still a stiff price. images_2 Imagine selling a Lamborghini at 65% off!  $70,000 for a $200,000 car is a huge bargain.  But for someone without a job?

The new law allows those terminated between September 1,2008 and February 17, 2009 and who initially declined their COBRA election, another opportunity to elect the coverage at the reduced rate.  And they can begin their coverage March 1 instead of the date of the qualifying event.

Unlike regular COBRA, the subsidy is limited to those who are “involuntarily” terminated and their family members.  The plan sponsor can rely on the employees’ attestation that they were involuntarily terminated.

Unlike regular COBRA, the subsidy is limited to those whose income is below certain levels ($145k for singles and $290k for couples).  Curiously, that determination is made based on the income tax filings of the subsidized participant.  I can imagine that there will be a lot of hair splitting on that issue.

Unlike regular COBRA, the participant can elect coverage other than the coverage they were enrolled in at the time of their termination, provided it is a less expensive option.

The subsidy is only available for 9 months wile COBRA eligibility extends for 18 moths.

The subsidy ends after the 9 months or after the participant becomes eligible for other coverage.  That raises a lot of questions.  How will the plan sponsor know if the participant is eligible for other coverage?  What if the participant doesn’t even know that he or she or the children are eligible for other coverage, for example Medicaid or SCHIP?  It is easy to imagine a situation where an individual may not be eligible when they start out

An unproductive bureaucracy!

The process is a maze of intersecting, overlapping, and competing bureaucratic interests.  The plan sponsors sends notice to everyone who might be eligible.  The individual claims eligibility by asserting that they were involuntarily terminated.  The IRS determines if the participant met the income limits.  The IRS also indirectly reimburses the plan sponsor by permitting credits on the quarterly tax withholding reports. The Department of Labor decides any disputes about eligibility.

Imagine a single payer system where eligibility was not dependent on employment!

Imagine how much simpler the bureaucracy would be!

Imagine how much more meaningful the result would be!


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