The Pros and Cons of Subsidized COBRA Coverage

At the time this post was written, Congress was entertaining several initiatives designed to help people whose health insurance had been negatively impacted by the coronavirus crisis. Among them was a proposal to subsidize COBRA benefits for both the unemployed and furloughed.

If you are not familiar with COBRA, it is a plan under which terminated employees can still access employer-sponsored health insurance benefits for a certain amount of time. Prior to the coronavirus crisis, COBRA benefits were typically accessed by people in between jobs. COBRA allowed them to continue paying for health insurance coverage until benefits from a new job kicked in.

Subsidized COBRA for the Furloughed

The first positive in the proposal is providing subsidized COBRA coverage for furloughed employees. These are employees who are still technically on the payroll even though they are not currently working. Employers might offer furloughs because it allows them to keep health insurance benefits intact.

It is all well and good for employees, but they are not drawing a paycheck while furloughed. Under the federal proposal, Washington would pick up a furloughed employee’s portion of their health insurance. The employer would continue paying its portion.

This is good in the sense that furloughed employees would not be left without health insurance. However, it does not alleviate the employer’s fiscal responsibility. In that sense, it is not necessarily a good thing.

Subsidized COBRA for the Unemployed

A second part of the proposal is to provide subsidized COBRA coverage for the unemployed. This would be a 100% subsidy rather than the furloughed employee’s partial subsidy. Under the proposal, Washington would pay a terminated employee’s benefits via the original employer-sponsored plan.

Again, this is good in the sense that it keeps unemployed workers insured until they can find new jobs. The downside is that it is essentially a more expensive version of Medicaid. It’s hard to see how fully subsidized COBRA coverage would be any cheaper to purchase than simply offering employees Medicaid.

COBRA Election for Both

Dallas-based BenefitMall recently published a blog post discussing the Federal Healthcare proposals Congress was looking at for helping shore up health insurance shortcomings. They mentioned the COBRA subsidies, but they didn’t mention an interesting provision that has trouble written all over it. The provision allows for an extension of the time employees have to elect COBRA coverage. And in the event a terminated or furloughed employee previously rejected the coverage, the provision will allow them to change their minds.

This does not seem to be such a wise idea. It creates the opportunity for open-ended and retroactive COBRA elections that could be difficult to track or control. How far back would COBRA elections be allowed? All the way back to March 2020? If so, would employees who selected the coverage be able to claim reimbursement for already-paid medical bills?

Allowing employees who previously rejected COBRA to change their minds creates a quagmire involving past medical bills. It would present a real headache for employers as well. Just the administrative nightmare of figuring it all out is enough to cause heads to spin.

A Slippery Slope to Single-Payer

Despite some of the positives of subsidized COBRA coverage, the biggest negative is the potential for starting down that slippery slope to single-payer healthcare. Once the government starts picking up 100% of the tab for private health insurance, regulators can begin dictating how health insurance companies do business.

They already do dictate quite a bit, but subsidized COBRA coverage would expand Washington’s reach. Let’s hope it doesn’t happen. Let us hope that any bill passed offers the positives of subsidized COBRA without the negatives.

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