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Stimulus Plan Bails Out Insurance Companies

The Heritage Foundation has pointed out that the pending stimulus legislation includes a provision in it that would subsidize COBRA to the tune of $30.3 billion. For a quick primer (or reminder for those who know what COBRA is), let’s see how the U.S. Department of Labor defines the program:

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan.

There are other provisions to the plan, but this is the one that is central to the discussion. The new $30.3 billion subsidy would cover 65% of the cost of a COBRA plan (or roughly cover enough to keep the individual or family paying what they were before they lost group coverage).

There are two major problems with this.

  1. What is this doing in a “stimulus” package? I understand that money is fungible, but I’m really not sure how this is supposed to create short term growth in the economy. These funds will be spent on a product that is defensive in nature. Insurance (despite being necessary if you want to avoid bankruptcy after an ER visit) doesn’t really create growth. It may avoid negative growth, but if that was the goal of the stimulus plan we are in much worse shape than even the most pessimistic amongst us thinks.
  2. Once you get past problem number one (we’ll skip the whole debate on whether or not the government should subsidize health care for now), there are a lot of better options out there than COBRA for most people. COBRA plans are expensive (because they are just the continuation of your expensive employer-sponsored health plan). Yes, for those with health conditions it is the best option until they can either secure new group coverage or qualify for a high risk pool in their state. For everyone else though, it is money spent on a product that the could find an alternative to for much less. If (Yes, big if) a subsidy for health care was a useful way to stimulate the economy, why not expand the subsidy? Let those who lose their group coverage use the subsidy for any insurance plan. This way the individual/family gets to pick the best plan for them. If they want to save their money and go for a slimmer, less benefit packed plan then they should be able to. That would at least lead to less money spent on defense, leaving extra dollars in that family’s hands to spend on other goods and services.

Point number 2 leads directly into the problem of government funded (partially or wholly) health care. When they write the check, they make the rules. They pick the winners and losers. Not you. They pick what qualifies as acceptable insurance under the funding plan. You want that low cost high-deductible health plan and Health Savings Account (HDHP/HSA) that might save you money that you can spend else where? Too bad. The government isn’t going to help you with that. If you want the money you accept the strings.

So, who has the government decided wins in this scenario?

The health insurance companies. Group insurance makes up the vast majority of revenue for nearly every insurance company out there. It is how they get the revenue (that they then invest when not needed to pay out claims – that’s how they really make their profits). By enticing more people into spending more money than they would on their own, the government has just handed a $30.3 billion gift to the insurance industry.

This is why the government has no business being involved in the business of health.

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