Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Obama Administration Considering COBRA Reforms

with one comment

The Obama administration is considering some COBRA reforms designed to mitigate high COBRA premiums.

…the government would pay between 50% and 60% of the premium, while the length of the subsidy would be 18 months, the maximum period of time employees can obtain COBRA coverage from their former employers. In other situations, such as divorce, death and marital separation, beneficiaries are eligible for up to 36 months of COBRA. A federal COBRA subsidy “has been pretty much agreed to,” said Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee.

President-elect Barack Obama also appears to back the idea.

I’m opposed to this approach.  I prefer the solutions I offered last month (see the second and third points, specifically).  My solutions address not only the funding issue, but also the ease with which a person can transfer to and from the non-group insurance market.  The Obama reform program is less ambitious but presents several unnecesary complications:

* The subsidy may exceed the subsidy currently offered by the employer, meaning that losing your job may reduce your out-of-pocket premium payments.

* This reform proposal reinforces the role of COBRA in facilitating post-work insurance; I prefer to work towards making COBRA obsolete. 

* This reform proposal adds to an employer’s healthcare costs via increased anti-selection.  I prefer to have that cost absorbed more broadly through the unemployment insurance system, in the non-group market, or as a general charge applied to all group premiums.

* This reform proposal will encourage additional means-testing and extra layers of administrative overhead.  This burden will be heavier on small employers (as will the impact of anti-selection).

If something looks too politically convenient, it probably is.  I’m not confident that our policy makers have a strong grasp of the insurance market or how their proposals will interface with it.  I’m also not confident that taking a 20 year old idea (COBRA) and then throwing money at it is an efficient method of improving our healthcare financing system.

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Written by Victor

January 12, 2009 at 3:50 pm

One Response

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