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Boost to COBRA funding will lower the cost of health care coverage for newly laid-off Americans

March 4, 2009 – Robert Marks, 31, and his wife, Deborah, were ecstatic to learn last July that she was pregnant. But the news couldn't have come at a worse time for Marks, who lost his employer-sponsored insurance when GE Captial in Chicago laid him off four months earlier under the pressure of a crumbling economy.

When his severance ran out in May, Marks reluctantly enrolled in COBRA, a government mandated health insurance continuation plan. Marks worried about the plan's high premiums, which would cost about $850 a month for two people, more than half of his monthly unemployment check.

But Marks says he had no other choice. His wife, a psychologist, didn't have access to insurance from an employer and with a baby on the way, becoming two more of America's 50 million uninsured was not an option, he said.

For millions of Americans, a $25 billion earmark to provide federal subsidies to COBRA participants included in the stimulus plan, which became law earlier this week, came just in the nick of time.

The U.S. Department of Labor last week reported 3.6 million people have lost their jobs since December 2007 and, according to the Center for American Progress Action Fund, about 14,000 people a day lose their health insurance.

But while the policy aims to help as many 7 million workers let go between September 2008 and December 2009, according to the Congressional Budget Office, it provides little relief to Marks and more than a million others who lost their jobs in the earliest months of the recession.

"It's frustrating," said Marks, "because while I'm glad they extended unemployment benefits, I don't understand why they didn't extend COBRA to everybody. I lost my job because of the recession, too."

As of March 1, the federal government has begun reimbursing workers laid-off in the recession 65 percent of the cost of their COBRA premiums for up to 18 months. Those premiums, on average, cost individual consumers more than $400 a month and families more than $1000 a month.

Currently, COBRA enrollment is about 9 percent of eligible workers as few can afford the premiums, according to the Commonwealth Fund, a nonpartisan think tank in New York. 

Greg D'Angelo, a spokesman for the Heritage Foundation, a conservative think tank in Washington, D.C., said even with subsidy, COBRA's reach is limited.

"The majority of the unemployed are unlikely to be eligible for the COBRA subsidy," he said. "And for those that are eligible, it's still very expensive."

D'Angelo estimates that only about two-thirds of all U.S. workers will qualify for COBRA assistance and even fewer will enroll. Instead of a COBRA subsidy, D'Angelo said a better option would be to a tax credit or voucher that would allow consumers to choose their own health providers.

"What they're saying is: it's COBRA or nothing," he said.

But the subsidy is a strong incentive for those who qualify.

Sara Olson, 25, said she initially turned down the COBRA offer when she was fired from her job with Fox Broadcasting Company in January because the premiums were too expensive on her now part-time waitressing income.

"COBRA is so expensive – it would have been almost $500. [Fox] offered to pay the first month, but I couldn't afford to keep it up," said Olson, who added that she would reconsider COBRA now that the price has dropped.

"I had really good insurance at Fox," she said. "Now I have emergency insurance," which comes at a small premium but with a high deductable that consumers generally meet only in serious medical emergencies, or, as Olson put it, "in case I get hit by a car."

Only companies with 20 or more employees are subject to the federal provision. Smaller businesses are tied to state law, which, in Illinois, requires them to offer COBRA to former employees for up to nine months. State Rep. Karen May (58th) introduced a bill last week to extend that coverage to 18 months.

Marks said he is optimistic that he will find a job with health benefits before his COBRA coverage expires in September, so that his newborn will have access to the health care he or she needs.

In the meantime, he said, he and his wife are tightening their budget in anticipation of the baby's birth, expected next month, when both will be out of work and their monthly premium will likely go up by about 50 percent.

"We just budget," he said. "Few other people our age live the way we do. But I'd rather struggle financially than risk having an unhealthy baby."

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