Government Benefit for Uninsured Fails to Cover Rising Cost of Premiums; Unemployed Often Remain Ineligible for Program
By Ianthe Jeanne Dugan The Wall Street Journal December 29, 2009
The government is expanding a massive safety net to help the unemployed buy health insurance, but millions of people can't access the aid because of the way the program was designed.
As a cornerstone of the economic stimulus plan, the administration of President Barack Obama allocated $25 billion to pay 65% of health-insurance premiums for workers laid off this year. Earlier this month, Congress extended the program for people laid off through February 2010 and expanded the aid to 15 months from nine.
But the program is eluding many people in need. That is because it is tied to the narrow parameters of Cobra, the Consolidated Omnibus Budget Reconciliation Act of 1985, which President Ronald Reagan signed into law to help people cope during layoffs.
Cobra requires companies with more than 20 employees that already offer group health insurance to continue the insurance for former employees for up to 18 months. But insurance costs under Cobra have gotten so expensive that many people can't afford even their unsubsidized 35% portion. Meanwhile, millions of workers don't qualify for Cobra in the first place, because the law doesn't cover the self-employed or those working for companies that abruptly shut down or are too small, or those who didn't offer health insurance to begin with. The subsidy also is off-limits to individuals who have been unemployed the longest; only those laid off since October 2008 are eligible.
Despite the gaps, the administration says the program is helping. "This is a vast improvement over what was in place before when there were no subsidies at all," says Jason Furman, deputy assistant to President Obama for economic policy. "But this is not the president's long-term health reform -- this is a short-term response to a major economic crisis."
The Cobra subsidy is part of the nation's uneven unemployment safety net. Like unemployment checks, retraining and other benefits, which vary wildly depending on factors such as geography, the Cobra subsidy has created a lopsided system of haves and have-nots.
When Taylor, Bean & Whitaker Mortgage Corp. in Ocala, Fla., filed for bankruptcy protection in August, about 2,000 former workers couldn't get U.S. help buying health insurance because the company shut down the health plan.
"Why should I be left out of this government safety net just because I worked for a company that closed?" asks Susan Pascuma, a former insurance coordinator at Taylor Bean who now is without insurance.
Her unemployment check was about $1,200 per month. After paying $800 in rent, she says, she couldn't the afford private insurance of $1,000 per month, the lowest rate she says she found.
A week after her company shut down the health plan, the 39-year-old single mother of three went to the emergency room with pain from multiple gallstones. She was given medication and sent home; doctors wouldn't operate, she says, because she lacked health insurance. She later found a doctor who has agreed to operate for free.
She recently started working for a maker of air compressor parts on New York's Long Island, but won't qualify for the company's insurance plan for six months. She intends to buy coverage privately.
David Dantzler, a Taylor Bean lawyer, says the lender didn't have access to funds to keep its insurance plan going. He agrees that it "is terribly unfair" that employees don't qualify for U.S. help.
Similar situations abound. Through September, 45,510 businesses filed for bankruptcy -- more than in all of 2008 -- according to the nonpartisan American Bankruptcy Institute.
The Cobra-linked subsidy also is proving elusive for people who are eligible but don't have the means to pay for it.
Cynthia Parras decided not to enroll in Cobra after she was laid off from her job as a financial-services product manager in San Francisco in February, because she felt she couldn't afford it. Over the summer, she was diagnosed with shingles. The infection moved to her eyes, and doctors told her she could lose her sight without treatment. She paid about $2,500 out of pocket. To help compensate, she skipped her mortgage payment last month, and signed up for a state insurance plan for welfare recipients.
"This is scary and degrading," she says. "I never have been without insurance, and never in a million years thought this would happen to me."
Ms. Parras is starting a new job next month as an account manager at an Internet company, but the position doesn't offer health insurance, and she plans to buy it on her own.
Government officials initially estimated that some seven million people would be helped by the subsidy. But only half have tapped the subsidy program, estimates Ceridian Benefits Services, the nation's largest Cobra administrator. In a survey of 50,000 businesses released in October, Ceridian said 17.7% of former employees enrolled in Cobra, up from 12.4% last year before the subsidy was introduced.
Mr. Furman says the government isn't sure yet how many people signed up, because the data are incomplete and lagging. "Our belief is that very substantial numbers of people have enrolled," he says.
When the Cobra law was passed in the 1980s, it seemed like a win for both corporations and their employees. Workers would benefit from access to health plans even in the event of a layoff, while companies would be able to pass along 100% of the insurance cost to former employees, plus a 2% fee.
But as the costs rose, more healthy people shunned Cobra, leaving a disproportionately large number of sick former employees enrolled in company plans. As a result, insurers raised rates, driving up companies' employer insurance costs overall, including the bills of remaining employees.
Meanwhile, individual health premiums have skyrocketed. The average monthly Cobra bill for family health coverage has surged to 83% of the average monthly unemployment-insurance check, up from about 61% in 2001, according to Families USA, a nonprofit group focusing on health-care issues.
"The situation has gotten enormously worse because health-care costs have risen considerably faster than wages," says Ron Pollack, executive director of Families USA, which has been a proponent of the health-care overhaul.
Opponents of the Obama administration's drive to overhaul health care also have criticized Cobra. Michael Cannon, the director of health policy studies at the Cato Institute, a free-market think tank, says the Cobra requirement encourages some companies to stop offering health insurance or slow their hiring. The subsidy, he says, is "another band-aid on a band-aid that didn't solve the problem."
Cobra eventually could become obsolete under the health-care overhaul. Under the bills passed by the House and the Senate, most Americans would be required to purchase health insurance, with the government providing tax credits to subsidize the cost to low- and middle-income Americans. But since that provision wouldn't kick in until 2014, Cobra likely would remain a critical part of the system until then.
The government subsidy amounts to $325 a month on average for an individual and $715 for a family, according to government estimates. Jobless individuals pay their former employers 35% of the premium, and the employer recoups the rest through a refund in payroll taxes.
Erin Nelson, 47, faced $700 monthly Cobra payments after being laid off from a nonprofit in March. Her employer was small, so she wasn't eligible for the subsidy until July, after California passed a mini-Cobra law aimed at businesses with fewer than 20 employees. In the meantime, she says she paid $1,200 out of pocket for an ultrasound to investigate a pain behind her rib. She put off a routine mammogram and pap smear.
There also has been some confusion at some companies over who is covered under Cobra. People eligible for Medicare or a spouse's insurance can't get the subsidy, nor can workers who have left voluntarily.
The Labor Department says it has received more than 11,000 complaints this year from former workers denied the subsidy by employers. The government overturned 70% of the denials, a spokesman says.
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