Subsidizing COBRA Could Boost Enrollment, Cut Uninsurance

As policymakers try to reduce uninsurance during the coronavirus pandemic, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) has drawn attention for its role in providing coverage and subsidizing COBRA could bring even greater consumer interest, Kaiser Family Foundation (KFF) noted in a recent issue brief.

COBRA extends an employee’s health insurance after they have been laid off or lose their jobs in a qualifying event. The employer must offer them the option to access their existing group health insurance plan.

As layoffs and furloughs abounded due to the coronavirus, policymakers have considered subsidizing COBRA. Such a move would cost $106 billion over the course of two years, the KFF researchers estimated. They based this on the projection that full subsidization of COBRA would generate immense interest in COBRA coverage among the unemployed, with possibly every eligible beneficiary enrolling in COBRA.

However, if it continues to be largely unsubsidized, COBRA enrollment would look much different. The experts saw mixed evidence regarding COBRA’s merits if the insurance option remained mostly unsubsidized.

When unsubsidized, COBRA was not an attractive healthcare option for the unemployed, KFF said.

Employees bore the full brunt of the healthcare cost to stay on their employer’s group health insurance plan. In fact, enrollees had to pay more than that: the group health coverage cost plus the administrative fee, which was over $7,000 for the former and nearly $20,600 for families in 2017.

It is unsurprising, then, that it was not a popular option for the unemployed. Only around one percent of the unemployed in 2017 gained coverage through COBRA, during a year when 30 percent of the unemployed were uninsured.

However, policymakers chipped away at the costs by extending subsidies for COBRA coverage, first in 2009 by subsidizing 65 percent of the plan and in certain circumstances offering a subsidy of 80 percent.

In May 2020 the House passed the fourth coronavirus relief act, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which would pay for 100 percent of COBRA coverage costs. As of the publication date for this article, the bill is still pending in the Senate.

In contrast, Medicaid is free and the Affordable Care Act marketplace plans require a monthly premium but are subsidized on a sliding income scale.

While COBRA may not be the economical choice, the provider networks may be attractive. Employer sponsored health plans tend to have the benefit of larger and more diverse provider networks than the Affordable Care Act exchange health plans and often more than Medicaid as well.

However, the enrollment process may have made COBRA undesirable.

Policies implemented in 2017 requiring individuals to document their eligibility before enrolling during a special enrollment period window triggered by a qualifying event. The window usually lasted for 60 days. These policies may have stunted enrollment.

In comparison, Medicaid enrollment became much smoother, KFF researchers said, although there was conflict over Medicaid expansion’s impact on eligibility classification.

“Individuals losing their jobs and job-based coverage might not be aware of other Medicaid and marketplace coverage options, or successfully navigate the application and transition to other coverage. For them, COBRA continuation coverage could be more familiar and less administratively complex,” the KFF researchers recognized.

The researchers also noted that, historically, public plans supersede private plans in their ability to reduce healthcare spending because the private payer reimbursement rate tends to exceed Medicare rates by nearly twice the cost.

The KFF researchers ended by noting the major benefits subsidized COBRA could present for private healthcare payers.

“In addition, COBRA premium subsidies could generate a windfall for insurers and health plans whose 2020 premiums were established prior to the pandemic,” the KFF researchers noted. “At least in the short term, as patients delay elective procedures, major insurers have reported rising profits, some of which may need to be returned in rebates next year.”

Some payer organizations have written to Congress with the suggestion to tie subsidies to COBRA among their recommendations.