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For many Americans, the recession that began in 2007 led not only to job loss, but also to losing health insurance for themselves and their families. Three-quarters of nonelderly Americans who have health insurance receive coverage through an employer. In most cases, the employer pays for a relatively large portion of the cost of the coverage. Given the predominance of health insurance that is sponsored and subsidized by employers, the loss of a job is often accompanied by the loss of health care coverage.

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) was intended to help prevent the loss of health insurance among workers and their dependents. When employees change or lose their jobs, private employers with 20 or more employees are required to continue health care coverage for workers and their qualified dependents where, in many circumstances, coverage would otherwise cease. However, even though COBRA requires employers to provide continued health care coverage, the act does not require them to continue subsidizing premium payments. Instead, plans are allowed to charge workers up to the entire premium plus a 2 percent administrative fee. Given the high costs of COBRA coverage, some previously insured workers and their dependents cannot afford this insurance and, therefore, may experience gaps in coverage—particularly in times of recession when unemployment durations can be long. To help workers who lost their jobs involuntarily during the “great recession” of the late 2000s, the American Recovery and Reinvestment Act (ARRA) provided large subsidies for premium payments to most COBRA-eligible people who experienced a job loss between September 2008 and May 2010.

Despite the importance of COBRA as a potential source of health insurance, remarkably little is known about the number and characteristics of workers who might qualify for COBRA coverage or the personal and environmental factors that drive coverage. Additionally, there is not much rigorous evidence on the effects of the offer of the subsidy on COBRA coverage. As described in the report the U.S. Department of Labor (DOL) contracted with Mathematica Policy Research to conduct a study to fill the knowledge gaps about COBRA coverage and take-up, as well as to assess the impacts of the subsidy on COBRA coverage and other outcomes.

Research Questions

• Which types of workers were eligible for COBRA coverage and which of them signed up for it?
• To what extent did workers know about the ARRA COBRA subsidy and use it?
• What were the health insurance and labor market experiences of COBRA-eligible unemployment insurance (UI) claimants?
• What were the impacts of the subsidy on COBRA take-up and other outcomes?

Key Takeaways

• About 39 percent of UI claimants in 2010 were eligible for COBRA.
• More than 80 percent of COBRA-eligible UI claimants were aware of COBRA, but few understood the implication of COBRA for their health care premiums, deductibles, and co-pays.
• Among COBRA-eligible UI claimants, 34 percent opted for COBRA coverage.
• Seventy-one percent of COBRA-eligible UI claimants with a job loss in the subsidy period were likely eligible for the subsidy. Individuals were classified as subsidy-eligible if they lacked access to other group insurance at the time of job loss.
• Only 31 percent of subsidy-eligible individuals reported awareness of the subsidy.
• Workers who experienced a job lost in 2010 faced significant challenges becoming reemployed, and the majority reported financial trouble in the year following job loss.
• The subsidy significantly increased the take-up of COBRA coverage.
• While the ARRA subsidy increased COBRA take-up, it did not significantly reduce the share of workers who experienced gaps in health insurance or the total number of months that workers were without health insurance.
• Consistent with theoretical predictions, having access to the COBRA subsidy appeared to slow the return to work, but the small impact suggests that the subsidy was a minor disincentive.
• Eligibility for the subsidy did not affect financial wellbeing.

Citation

Berk, J., Rangarajan, A. (2015). Mathematica. Evaluation of the ARRA COBRA Subsidy: Final Report. Chief Evaluation Office, U.S. Department of Labor.

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The Department of Labor’s (DOL) Chief Evaluation Office (CEO) sponsors independent evaluations and research, primarily conducted by external, third-party contractors in accordance with the Department of Labor Evaluation Policy and CEO’s research development process.