Lawmakers Eye COBRA Premium Subsidy

Congressional negotiators trying to assemble a mammoth economic stimulus bill are considering including a provision to have the federal government subsidize COBRA health care continuation premiums for employees who lose their jobs, business lobbyists say.

Few details of the proposals are known, though lobbyists say their understanding is that the government would pay 50 to 60 percent of the premium, while the length of the subsidy would be 18 months, the maximum period of time employees can obtain COBRA coverage from their former employers. In other situations, such as divorce, death or marital separation, beneficiaries are eligible for up to 36 months of COBRA. A federal COBRA subsidy “has been pretty much agreed to,” said Sen. Max Baucus, D-Montana, who chairs the Senate Finance Committee.

President-elect Barack Obama also appears to back the idea. In a speech Thursday, January 8, at George Mason University in Fairfax, Virginia, Obama said his economic recovery plan would provide extensions of coverage for those who have lost their jobs and can’t find new ones.

Lobbyists said they didn’t know what criteria—such as income below a certain level—beneficiaries would have to meet to be eligible for the government subsidy.

There is precedent for federal COBRA premium subsidies. Under a 2002 trade law, the government grants a tax credit to pay 65 percent of premiums for those who lose their jobs due to foreign competition or for people 55 to 64 who are enrolled in pension plans taken over by the Pension Benefit Guaranty Corp. The tax credit also can be used to offset premiums from health insurance available from other sources, including state pools.

According to statistics provided by Hewitt Associates, about 20 percent of those eligible for COBRA coverage actually opt for coverage. That percentage, though, could rise as the economy slumps and fewer beneficiaries line up new jobs.

By law, employers can set the COBRA premium at 102 percent of the cost of coverage offered to employees. However, because beneficiaries who opt for COBRA are more likely to use medical services than employees, the premiums for beneficiaries typically do not come close to covering their costs. Experts say that for every dollar of COBRA premiums, employers pay about $1.50 in claims.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Workforce Management’s online news feed is now available via Twitter.