Biden’s plan to subsidize COBRA is a waste of money
President Biden has repeatedly promised to build a fairer economy, one that “works for everyone.” But if his stimulus plan is any indication, the president has a funny definition of fairness.
His $1.9 trillion proposal would force working-class Americans to cover health insurance premiums for people who have lost their jobs during the pandemic — even those who were making healthy paychecks before they left the workforce, and those who had gold-plated coverage.
It’s a wasteful and deeply unfair proposal that Congress would be wise to reject.
Among many other things, the stimulus proposal would subsidize 85% of COBRA premiums for unemployed Americans through September. COBRA is the federal program that allows people to stay on their employer-sponsored health plans for up to 18 months after they leave their jobs as long as they pay the full premium — both the employer and the employee portions — themselves.
Ensuring that unemployed people — many of whom are out of work through no fault of their own — can still get affordable health coverage is a worthy goal. But subsidizing COBRA premiums is a terribly expensive, inefficient way to do so. It would cost taxpayers $48.5 billion this year to pay for COBRA and smaller proposed health insurance subsidies, according to Moody’s Analytics.
That’s because COBRA coverage is unusually generous. In 2020, the average premium for employer-sponsored individual coverage was more than $7,400 per year, according to the Kaiser Family Foundation. For family plans, the annual premium was more than $21,000.
For a private company, it may make sense to offer exceptionally generous health coverage to attract and retain talented workers. But it makes no sense to force taxpayers to subsidize that coverage. Under Mr. Biden’s proposal, an executive who leaves a quarter-million-a-year job could have his lavish health plan funded by working-class taxpayers who can only dream of such gold-plated coverage.
Subsidizing COBRA premiums is also unnecessary, given that people who are unemployed have other ways to obtain affordable health coverage.
In many states, people can purchase short-term insurance plans that last up to a year, often for less than $100 per month. These low-cost plans may not be the right fit for people with serious health needs but can be affordable, temporary ways for relatively healthy people to protect themselves while they’re between jobs.
For people who want more comprehensive coverage, the cheapest mid-level silver plan on the Obamacare exchanges costs around $5,200 annually, on average. Less generous bronze plans can be had for under $4,000. Unemployed Americans can enroll in these exchange plans throughout the year, since losing a job is a “qualifying event” that makes folks eligible for coverage, even outside of the standard open enrollment period.
In other words, they don’t need the much-ballyhooed special enrollment period the Biden administration created between Feb. 15 and May 15 to sign up for coverage. People who lose employer-sponsored coverage have always had 60 days to enroll in new coverage through the exchanges.
By law, exchange plans must cover a laundry list of benefits, including prescription drugs and substance-abuse treatment. These plans are generally much cheaper than COBRA. Many of the unemployed will likely qualify for federal assistance with their premiums, given that they no longer have an income.
Subsidizing COBRA could even create perverse incentives. It’d discourage some people from looking for work, lest they accept a job offer and lose their taxpayer-funded coverage.
Nobody wants unemployed Americans to go without health insurance. But there are better, cheaper alternatives to COBRA. Paying for out-of-work Americans’ gold-plated coverage until the fall would be a colossal waste of taxpayers’ money.
Sally C. Pipes is the president, CEO, and Thomas W. Smith fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All” (Encounter 2020). Follow her on Twitter @sallypipes.