The End of COBRA Premium Subsidy Extension and Lessons Learned

On Friday,  June 28th, the House of Representatives approved American Jobs and Closing Tax Loopholes Act (H.R. 4213).  This legislation requires  401(k) fee disclosures, provide relief for pension funds and extend unemployment benefits.   

 However, noticeably absent from the was a planned extension of the COBRA premium subsidy, which was omitted in order to gain enough votes for passage.   The Bill  passed, 215-204, before the House recessed for a one week Memorial Day Holiday. 

Please note, this does not impact the COBRA Premium subsidy for individuals already receiving it who were involuntarily terminated prior to the end of May.    And this does not mean that individuals who are involuntarily terminated beginning June 1 will not be eligible for a subsidy if a Senate and House Reconciliation subcomittee decide to reinsert the COBRA premium subsidy extension into the finalversion of the bill that both the Senate and House then approve. 

There will likely be a Reconciliation rather than passage in the Senate of the House Bill because of the complexity and the political sensitivity of the Bill’s other provisions regarding 401K and pension regulation changes.  Growing political pressure and federal deficit concerns no doubt entered into the House’s decision not to extend the COBRA premium subsidy into the bill passed last Friday.

But what this signals is the end of another automatic extension by Congress of the COBRA premium subsidy.   While the COBRA subsidy has assisted hundreds of thousands of Americans, in my opinion it has been a very inefficient use of tax payer dollars.

By my calculations, had the COBRA premium subsidy legislation been designed to subsidize premiums only  for those with pre-existing conditions who would have been excluded from individual plans.  Those without pre-existing conditions could have purchased individual plans at  premiums very  near the subsidized COBRA rates. 

 The Feds could have achieved the umbrella protection that they intended for out of work Americans  for $100 billion less, and would have enough money left over to still extend the COBRA premium subsidy through 2011 for those with pre-existing conditions.  Out of work Americans would have paid the same amount for their health coverage without conditions, and taxpayers (who eventually have to repay the federal debt) would have $100 billion less burden.