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Health Insurance Veteran Questions COBRA Proposal Impact

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What You Need to Know

  • The COBRA provision is in Subtitle E of Title II, and may not help employees in long term.
  • COBRA competes with ACA exchange plans and short-term health insurance.
  • A study found only 6% of consumers know much about COBRA.

A man who competes with COBRA group health continuation coverage says the federal COVID-19 stimulus package probably will not do all that much to improve COBRA.

Jeff Smedsrud, the CEO of Pivot Health, talked about the stimulus package COBRA section in a recent email interview.

At press time, member of the House had voted 219-212 to approve H.R. 1319, the “American Rescue Plan Act of 2021″ package.

One section, Subtitle E—COBRA Continuation Coverage, in Title II, would use employer tax credits to reduce displaced workers’ share of COBRA coverage continuation premiums to 15% of the total premium bill.

The subsidy would take effect on the first day of the month following approval of the stimulus package.

Smedsrud warned against thinking of the COVID-19 provision as a major new source of coverage.

“Remember, it’s only for those who worked for companies with 20 or more full-time employees,” Smedsrud said. “Those who worked at smaller firms are not eligible for COBRA, and thus not eligible for the COBRA premium subsidy.”

COBRA Basics

Under normal COBRA rules, employers can ask workers to pay 102% of the total premium bill or more than $1,500 per month for solid family coverage, in many cases,  to continue their group coverage.

Pivot Health sells short-term health insurance and supplemental health insurance products. The federal government and many states exempt short-term health insurance from the coverage and underwriting rules that apply to employer-sponsored group health coverage.

An arm of UnitedHealth Group Inc., for example, sells a short-term health insurance product, with a $5,000 annual deductible, a $2 million per person annual benefits maximum, many coverage exceptions and exclusions, that runs about $450 per month, for a family of four in Missouri, with two 55-year-old nonsmoker parents and two 16-year-old nonsmoker children who are all healthy enough to buy coverage.

Both COBRA continuation coverage and short-term health insurance sellers compete with issuers of ordinary individual and family major medical insurance, sold either through an Affordable Care Act public exchange program or outside the exchange system.

The eHealthInsurance.com website shows that unsubsidized ACA-compatible major medical insurance coverage for a family of four, with unlimited annual and lifetime benefits, full coverage for behavioral health and maternity care, what might be a narrow provider network, and a deductible of $5,000 to $10,000, could cost about $1,800 to $2,300 per month.

H.R. 1319 COBRA Provision

The federal government pay for the coverage continuation by providing tax credits. Employers could apply to get cash through the tax credit program in advance, and the provision would be “refundable,” according to the package text.

Refundability means that employers with more COBRA coverage continuation tax credits and tax obligations could get cash back from the government, according to the package text.

For an employee, heavily subsidized COBRA coverage still could be much more expensive than subsidized Affordable Care Act public exchange plan coverage. This is because another provision in H.R. 1319 could subsidize the ACA exchange plan premiums for unemployed people as if they had a household income of just 133% of the federal poverty level.

But a worker continuing group health benefits might have already met the deductible, and the group health plan might have a broader provider network, richer benefits and longer lists of covered drugs.

A Point of Friction

Democrats and their allies have just 50 seats in the Senate. They must rely on the vote of Vice President Kamala Harris to break 50-50 ties.

Democrats would likely need 60 votes to get an ordinary bill through the Senate, under the rules that govern ordinary bills. They need only 51 votes to win passage of a bill debated under the budget reconciliation process.

Some Democrats in Congress could decide to vote against H.R. 1319, or abstain.

If H.R. 1319 runs into serious problems in the Senate, House leaders could end up trying to pass a shorter or entirely different version of the package. Negotiations over the rewrite could push the COBRA provision out of the package, or lead to changes in package details.

COBRA Complexity

Even if the stimulus package passes as written and works as drafters expect, one major problem will be the complexity of the COVID-19 program, Smedsrud said.

“We recently did a national consumer study, and only 6% of the respondents correctly identified how COBRA works, and who it impacts,” Smedsrud said.

He said the brief availability of the COBRA subsidy provision in the stimulus package will be another major obstacle.

“The COBRA subsidy is a good thing, but its impact may be over-stated, particularly if it ends by Sept. 30,” Smedsrud said. “In the fourth quarter of any year, more people are likely to meet their deductible. Many who may use the subsidy might drop COBRA just when they need it most.”

ACA exchange plans and short-term health insurance plans still may be better for workers who are in the gig economy, Smedsrud said.

 

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