Will COBRA Subsidies Raise Health Insurance Premiums?

Posted on March 31, 2009

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A recent article in Employee Benefit News discusses the possibility that the COBRA subsidy included in the $787 billion American Recovery and Reinvestment Act may lead to increased medical premiums at some point in the future. According to the article, some benefits experts are reasoning as follows:

. . .although the government and employees are footing the bill for COBRA premiums, claims incurred by terminated individuals and/or dependents could have a negative effect on the group’s premium rates down the road.

This is because terminated employees who are facing serious medical conditions are more likely to elect COBRA coverage, since they cannot afford to lose health care coverage, explains Lenny Sanicola, practice leader for benefits in the professional development department of the HR trade association WorldatWork.

It’s an interesting idea, although I’m not sure that the underlying premise is correct. For those with serious medical conditions, is the subsidy really going to change their decision whether or not to elect COBRA? Presumably, these are the people most in need of coverage, and the least able to find other insurance. It would seem that such people would enroll in COBRA in any case. However, with the federal subsidy, the premiums become less of a burden, possibly preventing these individuals and their families from having to reduce other spending in order to afford their COBRA premiums.

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Posted in: Health Benefits