Financial Woes Ahead For Unemployed As COBRA Subsidies Wind Down

As the COBRA premium subsidy begins to end, unemployed families on COBRA could see their premiums increase from $389 per month to $1,111 per month, according to a new report from Families USA. Monthly premiums of $1,111 would consume 83.4% of the average unemployment check, according to the report, Expiration of COBRA Subsidy.

The federal COBRA subsidies pay 65% of the cost of COBRA premiums for up to nine months. The first subsidies became available on March 1, and these were scheduled to expire on December 1. For those who started receiving subsidies after March, the expiration will be nine months after the subsidy begins. Employees involuntarily terminated through Dec. 31, 2009, and whose COBRA would be effective by that day, are eligible for the subsidies.

“When workers lose their jobs, they often lose their health coverage as well,” said Ron Pollack, executive director of Families USA. “For millions of laid-off workers and their families, the federal COBRA subsidies have been a health care coverage lifeline. It is essential, therefore, that new jobs legislation extends those subsidies.”

Mr. Pollack noted that pending health care reform legislation would provide a permanent source of help to laid-off workers. The health care reform bills pending in Congress would enable laid-off workers and their families to obtain health care coverage through newly created marketplace exchanges, and families with low incomes would receive tax-credit subsidies to help pay the premiums.

According to the Families USA report, average monthly family COBRA premiums vary quite significantly from one state to another—ranging from $979 in Idaho and $989 in Iowa to $1,232 in Minnesota.

In nine states, the average family COBRA premium exceeds the average unemployment insurance benefit. In Mississippi, for example, the average monthly unsubsidized family COBRA premium is 22.4% higher than the average monthly unemployment insurance check: The average family COBRA premium in the state is $1,027, while the average monthly unemployment insurance check is $839.

The eight other states in which the average family COBRA premium exceeds the average unemployment insurance check are: Alabama ($1,005 vs. $903); Alaska ($1,209 vs. $1,032); Arizona ($1,111 vs. $941); Delaware ($1,209 vs. $1,125); Florida ($1,147 vs. $1,010); Louisiana ($1,013 vs. $968); South Carolina ($1,090 vs. $1,061); and Tennessee ($1,112 vs. $975).

High unemployment due to the recession and the previous lack of a COBRA subsidy can seriously affect COBRA elections, according to the 2009 COBRA Survey completed by Spencer’s Benefits Reports. This survey, which was conducted before the subsidies were in effect, clearly illustrates that in a recession, as more employees are laid off and become eligible for COBRA, fewer sign up for the program because of cost.

In the 2009 survey, 16.87% of employees (270,921 individuals) became eligible for continuation of coverage. The 16.87% COBRA eligibility rate is 1.5 times greater than the 20-year average of 10.37% and is the highest recorded in the 20 years of the Spencer survey.

In addition, only 9.69% of beneficiaries eligible for COBRA actually elected the coverage. The number electing (as a percentage of those eligible) was less than half of the 20-year average of 19%, and the 9.69% rate of election was the lowest recorded in the 20 years of the Spencer survey.

The 2009 COBRA survey is available with a subscription to Spencer’s Benefits Reports (for information on ordering, click here).

Recent evidence also suggests that COBRA elections increased substantially after the subsidies took effect.

Subsidy Extensions Proposed

In addition to overall health care reform legislation, three bills pending in Congress specifically would extend the COBRA subsidies.

In the Senate, Sen. Sherrod Brown (Ohio) has introduced S. 2730, which would extend eligibility through June 2010 and increase the subsidy period to 15 months. S. 2730 also would boost the subsidy to 75% of the COBRA premium. The bill was referred to the Committee on Health, Education, Labor, and Pensions (HELP).

In the House, H.R. 3966, introduced by Rep. Andre Carlson (Ind.) also would extend for six months, through June 30, 2010, the period of eligibility for COBRA premium assistance. The bill was referred to the Education and Labor, Ways and Means, and Energy and Commerce committees.

H.R. 3930, introduced by Rep. Joe Sestak (Pa.), also would extend the period of eligibility for COBRA premium assistance through June 30, 2010. In addition, H.R. 3930 would make the following changes:

• Extend the duration of 18-month COBRA qualifying events to 24 months for any termination of employment (voluntary or involuntary) or reduction of hours that occurred between April 1, 2008, and Dec, 31, 2009.


• Qualified beneficiaries for whom COBRA coverage already has expired before the law is passed would have a second election right to obtain an additional six months of coverage.


• COBRA subsidies would continue for up to 15 months, instead of the current nine months. However, all subsidies would end after Dec. 31, 2010.

H.R. 3930 also was referred to the Committees on Education and Labor, Ways and Means, and Energy and Commerce.