Health Insurance Dilemma: COBRA Subsidies Will Soon Run Out for Many

Unemployed workers who have been taking advantage of a federal subsidy to help them pay for continued health care coverage will soon get an unwelcome reminder of how much that insurance really costs. That's because those who enrolled in the program when it first became available in March 2009 have, as of this month, seen the last of subsidized payments.

The program, part of the American Recovery and Reinvestment Act which President Obama signed into law in February 2009, pays 65% of the premium to continue health-care coverage under an employer's plan for workers who lose their jobs through May 31. For many laid-off workers, the generous subsidy meant the difference between maintaining health coverage and going without.

Further, those who opted in March 2009 to keep their employer-sponsored insurance will find that as of Sept. 1 they're no longer eligible, since COBRA, the 1985 law that allows workers to keep buying into their former employers' health plans, only allows them to do so for 18 months (although there are certain exceptions for dependents or those with disabilities that allow coverage to extend up to 36 months).

There aren't yet any statistics available about the number of people who have received the COBRA subsidy and now risk losing their health coverage. The Internal Revenue Service, which tracks that data, hasn't yet released any numbers. But it is clear that more people have chosen to hold onto their health insurance in light of the government's assistance.

The most recent Department of Labor unemployment report showed that in March, 6.55 million Americans had been unemployed for six months or longer, accounting for 44.1% of the nation's jobless. But unemployment is only part of the COBRA story: Those who have found new jobs that don't provide health insurance, for example, also may utilize the program.

Typically, about 19% to 20% of workers enroll in COBRA when they leave their employers, says Karen Frost of Hewitt Associates, a human-resources consulting firm. But after the subsidy became available, "we saw a significant shift in terms of increased uptick," she says, with the participation rate doubling to about 38%.

Needing Health Insurance Makes It Harder to Find

As worrisome as anything else, consumers faced with losing COBRA coverage have few other options, and the rules governing insurance vary from state to state, says Karyn Schwartz of the Kaiser Family Foundation, a healthy policy research organization.

Of course, the simplest way to maintain coverage is to buy an an individual or family policy on the open market, Schwartz says. But that isn't always an option for consumers or their dependents with "preexisting conditions" -- previous or ongoing health issues -- whom insurance companies often refuse to take on as new customers.

For those who may be subject to such exclusions, a federal law known as the Health Insurance Portability and Accountability Act, or HIPAA, requires that those who maintained COBRA coverage be permitted to purchase individual health insurance policies. But there are restrictions, not the least of which is the need to sign up for HIPAA coverage within 63 days after COBRA expires. If that deadline is missed, Schwartz says, "then you could really be stuck and have no coverage options."

HIPAA coverage is often more expensive than plans offered through the open market, because the plans are offered to people who have no other options. Consumers who are healthy and buy health insurance on their own wouldn't need the HIPAA protection, Schwartz says.

Though there are no federal caps on how much insurers can charge for HIPAA policies, states typically do impose limits. In some states, HIPAA-eligible consumers are placed into a high-risk pool, while other states require each insurer to offer one plan for people who are HIPAA eligible. Kaiser operates a website, called StateHealthFacts.org, that provides information on state laws governing health insurance.

Options for Post-COBRA Coverage: Available, But Not Great

The health care legislation signed into law by President Obama earlier this year does allow consumers with preexisting conditions whose COBRA coverage has lapsed or who aren't able to afford coverage to buy insurance through new state-run high-risk pools, which will be available beginning next month. That option may be cheaper than the current set of high-risk pools, Schwartz says, but it does require that patients be uninsured for at least six months.

If consumers can't wait and aren't able able to afford HIPAA, they may be able to qualify for subsidized coverage under state Medicaid programs, if they meet certain household income and savings thresholds, says Jacques Chambers, a Los Angeles-based benefits consultant. And if that's not an option, he says, "There's also the extreme of [finding] a domestic partner or spouse who's got coverage you can get into."

Regardless of the options available to them, consumers faced with losing COBRA coverage shouldn't expect much more than a letter from their current carrier advising them when that insurance will expire. Chambers says he frequently gets calls from panicked customers whose COBRA coverage is ending who have discovered they can't buy a policy in the individual market because of health problems. "They don't know what to do," he says.

For that reason, Chambers says, it's important not to wait to make decisions about purchasing future coverage. If consumers need to take advantage of being HIPAA eligible, he says, the clock is ticking.