RALEIGH – The need to choose the right tool for the right job extends far beyond the workbench. Reporter James Gallagher has a piece in the most recent Triangle Business Journal that demonstrates how this maxim applies to the goal of making health insurance portable.
It’s hard not to sympathize with the goal. I’ve known quote a few folks over the years suffering from “job lock” – being stuck in positions they don’t like, or that pay poorly, simply because leaving to find other work would trigger the loss of health insurance coverage they like or can afford.
Back in the mid-1980s, Congress thought it could help Americans trapped in this situation by adding a provision to a budget bill that required insurers to offer employees the option of maintaining their enrollment in a group plan for a certain period of time after leaving a job, typically 18 months. The provision is now called COBRA because that was the acronym for the budget legislation in which it was embedded.
For workers experiencing short spells of joblessness, COBRA can be useful. But for many families, the cost of maintaining coverage under COBRA are prohibitive. So in last year’s “stimulus” package, Congress and the Obama administration included temporary subsidies for workers exercising their COBRA option. It made a big difference in the price – an average of $389 a month for families receiving subsidy, vs. $1,112 at the full freight – which is why participation in COBRA has spiked, from 19 percent of unemployed workers before the stimulus bill to 38 percent afterwards.
Now that the federal subsidies are scheduled to end, however, there’s a lot of concern about what will happen to those who continue to be unemployed. Will they become uninsured as well, or end up on the Medicaid rolls at an even higher cost to taxpayers?
Unfortunately, there is no good short-term solution to this problem. It is the inevitable result of a system for financing medical care that relies on employer-based health insurance. Many on the Left want to replace this system with a single-payer plan run by the federal government, as in Canada or Great Britain. Many on the Right want to replace this system with private health plans owned and controlled by households, with no necessary tie to an employer.
Very few policy analysts, actually, want to maintain the current system. Incumbent insurance companies may want to, but the rest of us recognize that arranging health care financing arrangements around employment contracts is a bad idea, for multiple reasons.
A major reason why the COBRA option is so expensive is that those workers who choose it tend to be more likely than average to make claims. After all, if you consider yourself to be relatively healthy and expect to be reemployed relatively quickly, you might well choose not to shell out hundreds if not thousands of dollars a month to maintain insurance coverage. Millions make this choice each year. They are counted as part of the “uninsured,” even though in many cases their spells of joblessness and uninsurance are brief. On the other hand, those who are likely to opt for COBRA are those most likely to cost insurers money, which affects the pricing of the employer-based plans workers would seek to extend.
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.
Essentially, rather than making workers pay high premiums indirectly, through their employers, for low-deductible plans tied to their current jobs, we should let workers pay premiums directly for plans that have no relationship to their employment status, and indeed let them “pay themselves” every month with savings-account deposits.
Some will argue that the individual market doesn’t allow for the same bulk-buying advantages that employer groups do, but that’s wrongheaded for two reasons. First, the bulk-buying advantages aren’t nearly as big as one might think. Second, there are other ways to group buyers together than don’t tied their health plans to their jobs, such as bulk buying through churches, neighborhood associations, professional societies, or private clubs.
Portability is an important goal. COBRA isn’t the right way to do it, subsidy or not.
Hood is president of the John Locke Foundation