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How the Hell Did We End up With the Absurdly Expensive COBRA Health Insurance Law?

It’s an outdated, expensive and largely superfluous option these days, but weirdly enough, it can still be a lifeline for some

If you ever had health insurance through your job but were then laid off or quit — particularly now, because of COVID — you’ve probably encountered COBRA. It’s named after the spending bill it was part of, but the acronym is eerily accurate, as it can be a truly venomous policy. Here’s the gist: If you’d like to stay on your old employer’s health plan (for a while, at least), you can! It’s just that you’ll have to pay the full cost of the premium (plus an extra 2 percent, for admin or something): Your share, plus the share your employer used to pay.

This isn’t something that most people out of work can actually afford. So how did we end up with this law? What’s the point of it? Alongside Gerald Kominski, a professor of health policy and management at UCLA’s Fielding School of Public Health and a senior fellow at UCLA’s Center for Health Policy Research, we got some premium answers.

Isn’t COBRA almost a cruel taunt? You have to pay the full cost of your insurance, even though you’ve lost your job and now can afford it less than ever?

Yes, for a lot of people. But Kominski says you’ve got to understand that COBRA is a vestigial piece of legislation — at the time it was enacted in 1985, it was really important to people, and it remained that way right up until the Affordable Care Act of 2010 (what everybody calls Obamacare). 

That’s because just being able to keep your insurance was a big deal, even if you had to shoulder the whole bill. The Consolidated Omnibus Budget Reconciliation Act (COBRA) prevented people from having to automatically go get insurance on the individual market, which, before the ACA marketplace materialized, was about as hospitable as a porcupine den (or, indeed, the homebase of the nefarious fictional terrorist network with which COBRA shares its name).

What was so bad about the individual market?

“Before the ACA, depending on which state you lived in, the individual market could ask you to fill out a questionnaire about your health history; they could deny coverage based on preexisting conditions; or they could deny coverage of a preexisting condition,” explains Kominski. “And they could charge you higher premiums based on your health history.”

The individual market, pre-Obamacare, wasn’t only unfair to consumers — individual plans would usually cost more than one’s group plan! That’s because employers, like larger purchasers of anything, are able to get volume discounts. 

So COBRA was kind of a lifeline for people at one time?

Yes — it could be the difference between being insured or uninsured. “COBRA guaranteed that you could continue your insurance,” Kominski explains. “Of course, now you’re paying 100 percent of the premium and you’re out of work, but — but — you were guaranteed of having insurance. If you went into the individual marketplace, you weren’t guaranteed to get insurance depending on the state you lived in, and you were almost certainly going to pay more.”

But is there any point to it nowadays?

Less so, although for some people, particularly older people, going COBRA could be a better deal than Obamacare. That’s because some group health insurance plans don’t calculate individual premiums based on each person’s age — some plans use what’s called income-based insurance, where the more you make, the more you pay. And while an ACA plan can’t charge you higher premiums based on your health history, it can — and will — calculate your premium according to your age. This means that for some people, sticking with their old employers’ plan might be a good option.

And the whole keep-your-doctor thing, right?

Exactly. This part is probably even more important, says Kominski. If you stick with your old employers’ plan via COBRA, you’ll keep access to the same doctors and same hospitals, with the same coverage for any prescription drugs. But getting an ACA plan means you might not be able to access the same doctors and hospitals, and perhaps even the medications you need wouldn’t be covered the same way. So there are logical reasons, for some people, to keep their plan. Being able to keep all your benefits is obviously worth the extra cost to some people.

Still, someone out of work can easily get Obamacare. So why’s COBRA even still around?

For one thing, it’s still a better deal for some people, as mentioned above. Also, Kominski points out, the reason the U.S. continues to have this complicated patchwork of health-care laws and financing is that politicians are hesitant to get rid of rules that are already in place because it’s hard to predict how somebody might be affected. So we leave certain protections and laws in place, even if a new law makes things better for most people. “There’s still that 0.1 percent,” he says. “Prior to COVID, employment-based insurance covered about 160 million Americans. Even 0.1 percent is a lot of people.”

How come the government has never picked up the slack and subsidized the cost of COBRA plans?

Kind of like what the Family and Medical Leave Act does? And exactly like what the American Recovery and Reinvestment Act of 2009 did? Mostly because the ACA was passed since then, and it’s a better deal for most people. And nowadays, the Senate’s hesitant to even continue unemployment benefits, never mind expanding health care! Also, many of them, as well as the Trump administration, still think the ACA is unconstitutional. “That’s not to say there isn’t support for it in the House,” Kominski says. “But as of right now, there are more important issues that Congress could address in terms of economic recovery.”

The good news these days regarding COBRA is that because of COVID, the government has given laid-off workers more time to sign up for COBRA, meaning if you want to go COBRA and currently don’t have a medical emergency, you have much longer to choose to pick it up beyond the usual 60-day election period. In fact, the election period will now last until the government declares the national emergency to be over, and then 60 more days after that.

COBRA is usually crazy expensive, and it’s not perfect, but when does anyone ever say that about health insurance (in this stupid country, at least)? And if you really, really need it, well, it’s there… for a price.