The urge to do good in this time of health crisis is understandable, but it has the potential to drive bad policies. That’s unfortunately the case with a new Trump administration regulation that attempts to ensure displaced workers have continued access to health insurance during the pandemic. The new regulation could completely upend health insurance markets while sinking taxpayer money into a hole that does little to help patients or taxpayers.
Under current law, most displaced workers can extend their employer-based insurance coverage through COBRA. But under COBRA, health insurance costs are no longer partially subsidized by employers and can be prohibitively expensive, with family premiums often exceeding $1,500 per month.
The rule would let displaced workers sign up for COBRA coverage through their previous employer and access the benefits of coverage throughout the duration of the coronavirus pandemic — even if they don’t pay premiums. Their coverage could last for 90 days after the president lifts the national emergency designation. Once that period ends, individuals are supposed to pay all outstanding premiums, but it’s not clear if there are any repercussions for not doing so. Many people, especially those who received no healthcare services during the pandemic, will be reluctant to pay this hefty bill, which could amount to thousands or even tens of thousands of dollars. Even those who want to pay could be hard-pressed to do so after months of scraping by.
The total cost of the insurance premiums and uncompensated care provided under these COBRA plans could easily reach into the billions of dollars. According to the Economic Policy Institute, 12.7 million people have already lost employer-sponsored health insurance during the coronavirus crisis. Health Management Associates projects that this number could ultimately reach as high as 35 million.
Yet the administration’s rule doesn’t address who will shoulder these enormous costs. Will the burden fall on employers, many of whom are struggling to survive during the economic downturn? Or will insurance companies be forced to pick up the tab and essentially provide free insurance to displaced workers during the pandemic? In truth, neither option would be feasible even during good economic conditions. In all likelihood, the federal government will have to swoop in with a bailout. This would solve some problems and create others.
The first problem is one of fairness. Many new COBRA enrollees will dutifully pay their monthly premiums and make corresponding economic tradeoffs in order to get by. Others, either out of cynicism or economic necessity, will not pay their premiums. Would a bailout effectively reward those who haven’t paid their premiums and, on a relative basis, punish those who have?
Secondly, the rule could hinder recovery by acting as an economic disincentive to rejoin the workforce. If a bailout holds beneficiaries harmless, it could be viewed as a full subsidy of their insurance premiums, which would make returning to the workforce less economically attractive. Because the rule would effectively apply for 90 days after the national emergency declaration is lifted, its impact would be felt at a time when getting workers reintegrated in the labor market is most critical.
Finally, a bailout could exacerbate America’s worsening budget problem. It is entirely reasonable to help displaced workers obtain health insurance during the crisis. But this goal can be achieved in a fiscally responsible manner. Instead of requiring employers and insurance companies to take on unreasonable costs, lawmakers should proactively create a short-term program to ensure displaced workers have adequate coverage during the crisis. One such solution would be to provide these individuals with a fixed economic benefit that could be used to purchase health insurance — a “pandemic health account” that would be a way for patients to best decide what kind of healthcare they need.
The Trump administration has fast-tracked its new COBRA rule and even bypassed the public comment period in the process. Haste is warranted, given the urgency and severity of the problem. But this solution is unworkable and could ultimately necessitate a massive federal bailout and create more problems than it solves. Policymakers should instead work with Congress to create a fiscally responsible, short-term solution to providing insurance coverage to displaced workers.
Brandon Arnold is the executive vice president of the National Taxpayers Union.
