COBRA and transitions of coverage

The House reconciliation bill has significant health insurance provisions.  I’ve mostly been focusing on the Affordable Care Act components as that is my jam.  It also has a very large temporary COBRA subsidization scheme (Subtitle E, Section 2401):

(1) PROVISION OF PREMIUM ASSISTANCE.—
(A) REDUCTION OF PREMIUMS PAYABLE.—In the case of any premium for a pe25 riod of coverage during the period beginning on the first day of the first month beginning after the date of the enactment of this Act, and ending on September 30, 2021, for COBRA continuation coverage with respect to any assistance eligible individual described in paragraph
(3), such individual shall be treated for pur7 poses of any COBRA continuation provision as having paid the amount of such premium if such individual pays (or any person other than such individual’s employer pays on behalf of such individual) 15 percent of the amount of such premium.

In plain English, qualified individuals who are on COBRA would see the federal government pay 85% of the  premium between April 1st and September 30th of this year.

COBRA has two great advantages over many other options.  First, it is the same coverage that someone already had.  There are no learning costs.  There are no transition costs of finding a new doctor/hospital or re-doing a pre-authorization.  Secondly, as it is the same coverage, the out of pocket expenses already accumulated while employed carry over.  Someone who had maxed out their deductible still has a maxed out deductible on COBRA coverage while they would be starting from zero again if they went on Exchange.

COBRA has a huge typical disadvantage.  It is expensive as hell.  COBRA, in normal times and under current law, has a premium equal to 102% of the group, non-age adjusted rate.  This means someone who is on COBRA is paying through the nose.  COBRA is a good deal compared to the Exchanges for much older than average employees who have already had large medical expenses for the year and anticipate large future medical expenses.  It is a horrendous deal for younger employees with little expected healthcare costs.  COBRA is always adversely selected.

The policy rationale can be boiled down to seamless transitions and a judgement about the nature of employment loss. We know that people fall through the cracks and starting new relationships impose significant individual and system level costs.

If we think that most of the people who are losing their jobs are losing their jobs temporarily because of short term shutdowns and slowdowns BUT that those specific jobs for the people who are specifically eligible for COBRA are going to come back quickly, then minimizing the number and pain of insurance transitions makes a ton of policy sense.  And this is a not a crazy bet if we think that the combination of masking, vaccination and ventilation will crush COVID combined with massive firehose of federal money ($1400 checks etc) and significant savings from the middle and upper-middle classes about to be spent this summer.  Someone who was the 3rd salesperson for a tool and die company and got furloughed in January has a good chance of coming back in May for the same job at the same company.

Now if we think that there is a lot of job loss for people who are COBRA eligible which is permanent in that their job no longer exists even if there are plenty of similar job openings that will become available to them in the near future, COBRA subsidization instead of sending people to the exchanges makes less sense.  People would be transitioning between coverage systems anyways.

That would be the short policy take.  The political take is simple — people don’t like navigating new systems of coverage and the population that likes COBRA relative to Exchange are fairly high propensity voters who would be seeing a very explicit and large policy that makes their lives a lot easier.