You’ve probably heard of COBRA and recognize it as that law that says you can keep your employer-sponsored health plan even after losing your job.  I recently received a request to have COBRA explained, and that’s a rather relevant question these days for two reasons:

1. Unemployment is currently at 9.6% (it usually floats around 4 or 5).  That means a lot of people have occasion to take advantage of COBRA.
2. The American Recovery and Reinvestment Act has provided benefits for COBRA users, and the president has since extended them.

What COBRA is

As the lengthy name suggests, the Consolidated Omnibus Reconciliation Act of 1985 (yes, I know it was passed in ‘86) concerns more than just health insurance.  The act gets its fingers into many areas of the economy, including energy, education, civil service, transportation, housing, agriculture…  But the part that everyone remembers and cares about is health insurance (titles IX and X).

I had a devil of a time trying to track down the actual text of the legislation—even Wikisource has text for only two of the twenty sections.  In the end, I didn’t find it all, though bits of it are scattered about the net (e.g. www.ssa.gov, www.medlaw.com).

COBRA in re: private health insurance

COBRA allows people to keep employer-sponsored health coverage for a limited time even after they lose claim on participation in the employer’s health plan.  Such excommunication may come about because of the loss of employment, due to termination, strike, etc.  Or it may be that a family member of an employee loses its coverage because of divorce, death of the employee, or aging out of eligibility.

COBRA stipulates that ownership of an employer-sponsored health insurance policy can be transferred to the covered individuals (and the insurer must uphold the policy) for a particular duration.  For most, this period is 18 months, but for disabled people or people who lose coverage because of divorce or death, the period is quite a bit longer.

The year and a half of continued coverage allows the insured time to seek new employment and/or apply for a new health plan.  This protection against the horror of a gap in coverage is important to most of the ballot cattle out there for two reasons:

1. Over half of Americans in the private sector participate in health care plans through their employer.[1]
2. We are psychologically dependent on health insurance.  Yes, we could just pay our medical bills, but we’d rather pay another company to pay our medical bills for us.  (For refresher on why this is absurd, read the final section of “I Don’t Like Health Insurance.”)

COBRA and ARRA (American Recovery and Reinvestment Act)

There was a joke circulating toward the end of 2008:

1.8 million people showed up for President Obama’s inauguration.  12 of them missed work.

Like other Democrats before him, Barry Obama aspires to be the patron saint of the unemployed.  Over the course of his command thus far, he has effectively increased the herd of out-of-workers by tying down the men of industry who actually create jobs.  And in effort to cement their loyalty (both to him and to ongoing unemployment), he has increased benefits for the unemployed.

In 2009, Barry-O signed the American Recovery and Reinvestment Act into law.  Most readers will  remember the meat of this legislation: grow the government and overreach the budget through the issue of bonds.  (I guess we can’t overreach next year’s budget, though, since Congress decided it would not pass a budget resolution this year.  Why control spending when it’s other people’s money you’re using?)

In addition to the  foregoing aims, ARRA creates subsidies of 65% for unemployed Americans using COBRA to continue their health insurance.  Initially, the subsidy was to last 9 months.  When, to Barry’s surprise, the recession didn’t end after 9 months, he increased the duration of the subsidy.  Then he did it again.  Anyway, now the subsidy is good for 15 months.

So now you know the bare bones about one aspect of COBRA.  This whitepaper will self-destruct in 5 seconds.

---

[1] http://www.bls.gov/opub/cwc/cm20071128ar01p1.htm (2006)