The Impact of the COBRA Premium Subsidy on Coverage

Abstract

The American Recovery and Reinvestment Act of 2009 included a provision for the federal government to pay 65 percent of the premium for individuals who were covered under COBRA and who incurred an involuntary job loss between Sept. 1, 2008, and Dec. 31, 2009. The subsidy was made available for up to nine months, and was extended by Congress three times, with the last extension occurring in April 2010. This paper examines trends in coverage through a former employer to analyze the impact of the COBRA subsidy. There are widely conflicting estimates of how many people benefited from the COBRA subsidy, but generally there has been lower-than-expected take-up of the subsidy. This may be due to the fact that, even after the subsidy, COBRA premiums may not be affordable for many families, especially at a time when they have seen a decline in income and since health insurance is expensive even with the subsidy. Using data from the Survey of Income and Program Participation (SIPP), a nationally representative survey conducted by the Census Bureau, this analysis finds that the COBRA subsidies that became available in April 2009 do appear to have had an impact on the percentage of nonworkers with coverage through a former employer -- but they appear to have assisted far fewer than the estimated 7 million individuals. This has implications for the impact of the subsidies that will become available in 2014 under provisions of the Patient Protection and Affordable Care Act of 2010 (PPACA), and may mean the number of uninsured may not fall as much as predicted.

The PDF for the above title, published in the October 2010 issue of EBRI Notes, also contains the fulltext of another October 2010 EBRI Notes article abstracted on SSRN: “Retirement Savings Shortfalls for Today’s Workers.

Keywords: Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), Employment-based benefits, Health insurance coverage

JEL Classification: I1, I18, J3, J32