COBRA’s a Snake that will Bite
Many people have used their rights under COBRA to purchase health insurance through or from their former employer. The fact that they have this option is on the surface a good thing. And thanks to Congress turning on the federal money spigot, these people have a significant subsidy–65% off the price of what they would otherwise pay.
That’s actually one of the better things that this Congress has done as far as health care. It’s a small step towards ending the tax discrimination against people who buy their own insurance. It also means that people most likely will get better medical care than they would as Medicaid patients.
There are downsides to COBRA, though. There’s probably going to be sticker shock, as now you are responsible for paying the entire cost of insurance. Granted, you were in fact paying that money all along (if your employer “pays” for your insurance, he’s going to be giving you a smaller paycheck to account for that), but now the costs are more explicit, and there may be a 2 percent administrative fee added on top of that.
The federal subsidy does help out, but to get it, you have to maintain the policy that you had from your ex-employer, a policy that might not be ideal for you. (Maybe you don’t like the insurance company, maybe you want higher or lower deductibles, etc.) And you have to hope that your ex-employer stays in business, so that the insurance policy exists.
As John Hood writes, “Portability is an important goal. COBRA isn’t the right way to do it, subsidy or not.”
What to do instead? “Over time, we need to choose a different tool for the portability job: a stronger individual market for health plans that are offered and priced more rationally – coverage for multi-year terms for large, unforeseen medical bills. For routine expenses, families should be able to save as much money as they wish in tax-free health savings accounts.”
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