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Study: COBRA Insurance Too Expensive for Unemployed

By Leah Nylen, CQ Staff

JANUARY 9, 2009 -- Most unemployed families cannot afford to retain their former employer's health insurance through the COBRA program because the premiums eat up more than three-quarters of the typical unemployment insurance benefit, according to a Families USA study released on Friday.

Created in 1985, the COBRA program (PL 99-272) allows employees who are laid off or voluntary leave their jobs to keep their health insurance for up to 18 months.

While unemployment insurance benefits vary according to state, the report found that the national average unemployment insurance benefit is $1,278, but the average COBRA premium for family coverage absorbs about 84 percent of those funds, or $1,069.

"COBRA health coverage is great in theory and lousy in reality," said Ron Pollack, executive director for Families USA. "For the vast majority of workers who are laid off, they and th"

Because of the rising number of individuals losing their jobs — and health insurance — during the current economic downturn, combined with the high cost of COBRA, congressional Democrats are considering including some form of health insurance assistance for laid-off employees in the recovery package, Pollack said.

On Tuesday, Senate Finance Chairman Max Baucus, D-Mont., said the package might include subsidies to help the unemployed with COBRA premiums.

The Families USA study analyzed state by state the average unemployment insurance payments, based on Department of Labor statistics, compared to the average COBRA premiums compiled by the Agency for Healthcare Research and Quality of the Department of Health and Human Services.

In nine states, the cost of COBRA premiums equaled or exceeded the unemployment insurance payment. In Alaska, the state with the largest disparity, the average COBRA premiums for family coverage consume 132 percent of unemployment income.

According to Pollack, there are two major approaches under consideration. The first would provide some form of subsidy to the uninsured to help with purchasing health insurance, such as COBRA.

The COBRA subsidy under discussion for the stimulus package could take the form of a refundable tax credit, similar to the health coverage tax credit offered for workers who lost their health coverage because of trade agreements, said Cheryl Fish-Parcham, deputy director of health policy for Families USA. The federal government also could directly pay for coverage by increasing unemployment payments or paying insurers directly, Fish-Parcham said.

The other approach under discussion would allow unemployed workers to be temporarily eligible for Medicaid, Pollack said. Under this scenario, the federal government would pay for 100 percent of the costs rather than the sharing costs with the states on a percentage basis.

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