Association for Public Policy Analysis & Management

COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985), which requires employers to provide continued health care coverage to workers, was created to help prevent the loss of health insurance among workers and their dependents at the time of job loss. However, employers are not required to continue subsidizing premium payments with COBRA, and workers are expected to pay the full premium costs to retain health insurance coverage. These high costs of COBRA continuing coverage can lead to low take-up of health insurance and to gaps in coverage. To assist workers who lost their jobs involuntarily during the “great recession” of the late 2000s, the American Recovery and Reinvestment Act (ARRA) provided a 65 percent subsidy for premium payments to most COBRA-eligible individuals who experienced a job loss between September 2008 and May 2010 and did not have access to other group health insurance coverage at the time of job loss. While this is a relatively large subsidy, there is uncertainty about how many individuals would actually take it up, since the subsidized premium still is large relative to unemployment insurance benefits and workers were uncertain about the duration of their job loss.

This paper uses data drawn from a new survey of COBRA-eligible individuals identified from an administrative sample of unemployment insurance claimants in nine states to examine the impacts of the subsidy offer on health insurance coverage. To estimate the impacts of the subsidy, we compared health insurance coverage and other key outcomes of subsidy-eligible individuals who had lost their jobs between January and May 2010, with otherwise similar individuals who would have been eligible for the subside except for the timing of job loss (similar individuals who lost their jobs in June 2010-December 2010).  All individuals we surveyed experienced a job loss in 2010, and individuals in the post-subsidy period were selected to ensure similarity in observed demographic characteristics and employment histories.

We found that access to the subsidy significantly increased COBRA take-up by about 5 percentage points (or 15 percent). However, we did not see any reductions in the total number of months these workers lacked health insurance. Thus it appears that workers who were induced by the subsidy to use COBRA may have eventually found other source of health insurance in the absence of the subsidy. There was no impact on COBRA take-up for low-income households. We also found that subsidy-eligible individuals were less likely to be employed in the second and third quarters following their job loss, but eventually end up having slightly higher employment rates a year after job loss. Overall, the impact of the subsidy on COBRA take-up was significantly lower than one would have predicted from the responses that unemployed individuals gave to hypothetical questions about their health insurance decisions.  These findings suggest both that more public education may have been necessary to make eligible workers aware of the benefit and that the subsidized COBRA premiums were still too expensive for many unemployed individuals.