How the Costs of Unsubsidized COBRA Health Insurance Will Add Up


Unemployed workers have suffered many ups and downs since the onset of the recession. From losing their jobs, to waiting for unemployment checks, it’s been a difficult few years for these individuals trying to figure out ways to make ends meet. For many, the financial struggles were amplified with the responsibility of maintaining health insurance for an entire family.

That’s why a COBRA subsidy from the government came in so handy for those in need of assistance paying for expensive insurance coverage. Unfortunately, with the subsidy recently coming to an end, heads of households have been left to wonder how they will keep their families insured. There’s no doubt that losing the subsidy is costly. To see how much so, let’s look at what it means to go without this important subsidy.

Understanding COBRA and the Subsidy

If you’re not familiar with COBRA (The Consolidated Omnibus Budget Reconciliation Act of 1985), it is an extension of employer-based group health insurance that offers employees access to quality health plans after terminating employment as a result of quitting, being fired or getting laid-off.

In the past, many unemployed workers have chosen to bypass COBRA due to high costs (recipients must pay the entire premium plus a 2 percent administrative fee). However, in March 2009, the government provided a 65-percent subsidy to help those who had been laid off due to the recession.

The subsidy was originally intended to stretch out for nine months, which was half of the time that workers were allowed to stay in the COBRA program. In Dec. 2009, it was extended to 15 months to accommodate the COBRA program’s extension from 18 to 26 months.

This helped those who had lost their jobs between Sept. 1, 2008 and Feb. 28, 2010 pay for insurance a little while longer.

Subsidy Was Terminated in June

Though the subsidy had a great reputation for helping millions of people gain much-needed access to health care, it became a budgetary issue for Congress. After heated debates between Democrats and Republicans, and a long Memorial Day recess, lawmakers decided to end the COBRA subsidy.

This was a major surprise to many who assumed it would be extended since it was a part of the unemployment benefits bill that was extended in July. But lawmakers said they needed the $7.8 billion they would be saving for other ventures.

Amidst the bad news was some good that those who started on COBRA before May 31 could still receive aid. For anyone who had already exhausted their 15-month subsidy, or was newly unemployed, eligibility was no longer an option.

This meant hundreds of thousands of unemployed workers would be left to figure out how to pay for this costly coverage on their own.

Why Losing the COBRA Subsidy is So Costly

Just how costly is losing the subsidy? According to stats from the U.S. Agency for Healthcare Research and Quality, while the average price for family coverage under COBRA is about $1,100 a month, coverage is reduced to about $385 a month with the subsidy.

This means, if a person received the COBRA subsidy for 15 months, they would pay roughly $5,775 as opposed to $16,500 for subsidy-less coverage over the same duration of time.

So why not simply drop COBRA and opt for coverage through a private insurer out of pocket? There are a number of problems with taking this route.

One is that those who take on an individual insurance plan, as opposed to the group coverage extended from their former employer, often find that insurance is more expensive.

That’s not the only problem.

Some who decide that striking out on their own is affordable but have preexisting conditions don’t qualify for new coverage. Though the health care reform bill that passed in March 2010 requires companies to insure people with preexisting conditions, it doesn’t take effect until 2014.

Are There Lower-Cost Alternatives?

So how does one go about finding cheap health insurance these days with so many odds stacked against them? Here are a few options to consider:

  • Health insurance exchanges: Many states set up health insurance exchanges that would offer affordable coverage to individuals and families. The one catch with these exchanges though is that people with preexisting conditions could be rejected.
  • High-risk health insurance pools: All states were required to set up high-risk health insurance pools to provide coverage to those with preexisting conditions in July 2010. While the pools make sure that everyone is covered, they have a reputation for being a bit costly. Not to mention, if you were recently insured, you have to wait six months before being accepted.
  • Insure Kids Now: If you’re willing to opt out of coverage for yourself and instead insure your children then you could visit InsureKidsNow.gov to find information regarding low-cost programs they may be eligible for.

The loss of the COBRA subsidy was detrimental to many who needed this crutch to help them afford other necessities. As a result, families are faced with paying at least 65 percent more for their coverage.

On a limited income, it’s very common to decide that insurance has to be the first thing to go. Unfortunately, this not only threatens the health of those affected, but inadvertently contributes to the growing number of uninsured individuals in America.