COBRA Subsidies Expiration Opens Door to Insurers

What was positive in theory back in 1986 became a dark reality for health insurance policyholders. When the U.S. government first enacted the Consolidated Omnibus Budget Reconciliation Act (COBRA) legislation to help provide the unemployed with access for up to 18 months of continued medical insurance coverage, the premiums passed along to the unemployed were not discounted; in reality, they carried a 2% additional administrative fee. There were fewer unemployed then; compared to today’s unemployment rate of 9.7%, the average unemployment rate in 1986 was a paltry 7.0%, reports the U.S. Department of Labor’s Bureau of Labor Statistics.

In 2009, the Obama administration, by way of the economic stimulus plan, devoted $24.7 billion in COBRA subsidies to allow American workers who lost their jobs between September 1, 2008 and December 31, 2009 to receive a 65% subsidy on their state-rated COBRA plans—thereby enabling them to continue health insurance coverage for up to nine additional months.

Unemployed Americans welcomed the subsidies, according according to Chicago-based human resources and benefits company Hewitt Associates Inc., siting COBRA enrollment rates that doubled to 38%, and enrollees that found their premiums dropping on average from $1,000 to $377 per month. 

As the country enters the fourth quarter, however, experts are now examining the potential negatives to COBRA's special short-term program, asking whether the unemployed—who are about to see their discounts expire, will drop health care insurance coverage entirely.  Also unanswered is whether the U.S. government will continue this plan into 2010 for those who are still victim to unemployment’s economic woes.

In either case, health insurers are taking a proactive approach in garnering new business. In some cases, this may result in opportunities for insurers willing to offer temporary or short-term health plans.  Many insurers are already looking at offering a wider array of special options and deductibles.

Individual plans, as opposed to an employer-sponsored group plan, are the “fastest growing sector of the business,” said Humana Inc. spokesman Mitch Lubitz in a story reported by Finance and Commerce. The number of customers has grown 17% in the past year to 345,000 in June 2009 from 295,000 in June 2008, he said.

Humana, based in Louisville, Ky., began offering short- term insurance in April for unemployed or part-time workers, reports Finance and Commerce. The insurer then added individual dental and vision options in May as many COBRA users were continuing to pay for dental coverage. Golden Rule Insurance Co., a subsidiary of Minnetonka-based UnitedHealth Group Inc., has also started offering dental and vision plans.