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cobra insurance

“As part of the federal stimulus package, the nine-month subsidies made available to the unemployed starting in March have run out for those who collected them from the get-go.”

While Cobra is a reasonable solution in the short term, the fact is that the government is covering part of the costs and health insurance so that means they also pay the insurance companies to not lose business due to prices they charge. Insurance companies should recognize that hard times are here, and that they have received grants and must provide some temporary reduction in rates for persons unemployed as a gesture of good faith. Without subsidies, insurers will experience harder times than they have.

It is also important to note that these subsidies have encouraged something that together makes employers and insurance and health companies lose money. This is because those who choose to purchase COBRA generally have a necessity, resulting in adverse selection.

The average income per person costs and claims expenses for anyone on COBRA is 130% of what they put in, where a company can not pay 102% of their expiring premium (plus an administrative fee of 2 %), which means that an average loss of 26% per person on COBRA.

Although the argument can be made to subsidize it means you will reduce the problem of adverse selection, it is much more likely that this will only exacerbate it. This means it will be upward pressure on premiums to employers, bringing to the upward pressure on premiums charged to everyone.

Millions Face Insurance Crisis As COBRA Subsidy Ends
By Scott Hensley December 2 2009 NPR

It’s bad enough losing a job with the economy as bad as it is. But losing affordable health insurance is at least as big a worry for millions of Americans.

Now those worries are likely to worsen. Starting this week, $25 billion in special federal subsidies to defray 65 percent of the costs for people to keep buying health coverage through their ex-employers are expiring.

As part of the federal stimulus package, the nine-month subsidies made available to the unemployed starting in March have run out for those who collected them from the get-go.

Laid-off legal secretary Alida Holmes is one of the people who lost the COBRA subsidy this week and with it her insurance. “The thing that scares me the most is catching a cold and having it turn into bronchitis or pneumonia,” she told Detroit Free Press, “I have had this happen several times and ended up in the hospital. That is no longer an option for me since I have no health care now.”

You can read the rest of this story at NPR

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