COBRA subsidies would constrict the economy

Last week, the House of Representatives passed the HEROES Act, a $3 trillion follow-up to the first three coronavirus relief packages. Among other things, the package would have the government fund nine months of premiums for COBRA, the federal program that lets unemployed workers pay premiums in order to remain on their employers’ health insurance plans.

That’s a bad idea. Not only would it discourage people from returning to work, but it would give billions of taxpayer dollars to insurers that have profited handsomely during the pandemic.

The COVID-19 outbreak has led to a steep decline in doctor visits. A majority of states have suspended elective surgeries. Even sick people worry that a visit to the local clinic could expose them to the novel coronavirus. As a result, insurers have stockpiled cash over the past few months, collecting premiums without paying out claims.

Subsidizing COBRA would add to this windfall. Funding the program for a year would send $470 billion from taxpayers into insurers’ coffers.

In addition to bailing out insurers, the HEROES Act would disrupt the country’s economic recovery. Supplementing unemployment benefits with taxpayer-funded health coverage would discourage unemployed workers from looking for new jobs — or even returning to their old ones, once nonessential businesses reopen.

COBRA isn’t the only option for insurance coverage. Short-term, limited-duration insurance is a far more affordable option for people between jobs. Average annual COBRA premiums for a single man would be about $6,800; he could get a short-term plan for just over $700 per year.

If lawmakers subsidize COBRA, they’ll be privileging the interest of big insurers over those of ordinary taxpayers.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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