What Did We See Last Time There Were COBRA Subsidies?

The American Rescue Plan Act (ARPA), which was signed into law earlier this month, brought relief to those affected by the COVID-19 pandemic in the form of COBRA subsidies. The ARPA allows those who have been involuntarily terminated or experienced a reduction in hours to continue their employer health insurance coverage under COBRA with a 100 percent subsidy. Without the ARPA, these COBRA participants would typically pay the full premium.. 

This act will provide big savings for many Americans. We wanted to take a look back the last time there were COBRA subsidies to show you what could be coming. 

What is a subsidy?

Those who meet the requirements set by the ARPA can sign up for health coverage through COBRA that is fully subsidized for the months of April through September 2021 (or through the end of their COBRA coverage period, if earlier). That means the entire cost of the COBRA participant’s premiums would be paid for. 

How are the participants’ premiums paid for? The federal government will reimburse the employer or insurer (for certain plans) for the cost of the subsidy, including COBRA administrative fees. 

What did the last COBRA subsidies look like?

In 2009, the American Recovery and Reinvestment Act (ARRA) was signed into law by then-President Obama to provide support for those affected by the Great Recession. One of the ways it helped Americans was by providing those who “lost their jobs between Sept. 1, 2008 and May 31, 2010 with a 65 percent subsidy” for COBRA premiums for up to 15 months, according to the IRS.

The subsidy was also available to anyone who experienced a reduction in hours between Sept. 1, 2008 and May 31, 2010, followed by an involuntary termination between March 2, 2010 and May 31, 2010. 

How did the subsidies change qualified beneficiary behavior?

The ARRA’s COBRA subsidy was not as high as the one in the just-signed ARPA. However, it may have been influential in encouraging those affected to enroll in COBRA. Within the WEX platform, the COBRA election rate increased from 9.3 percent in 2008 to 15 percent in 2009. In the absence of any other factors, the increase can be reasonably assumed to result from the subsidies.

The U.S. Treasury Department’s Office of Economic Policy also noted an increase in COBRA elections. It conducted a survey of more than 6,000 New Jersey workers receiving unemployment benefits during the fall and winter of 2009. About 15 percent of those surveyed received coverage under COBRA. The subsequent report estimated that between one-quarter and one-third “of eligible unemployed workers enrolled in subsidized COBRA.” 

Who took advantage of the subsidies?

According to the Office of Economic Policy report, about 80 percent of those who took advantage of the subsidies from the ARRA had annual household incomes between $30,000 and $134,000. The report described these as being “the middle three quintiles” of household income distribution in New Jersey, concluding that it appears the subsidies had the greatest impact on the middle class.

The 65 percent COBRA subsidy did result in big savings. The report stated that the average family saw a decrease in COBRA costs from $13,500 to $4,725 thanks to the subsidies.

What does that mean for this round of COBRA subsidies?

It’s hard to say. The recession that occurred due to the COVID-19 pandemic is different than the one we saw during the Great Recession. What we’re experiencing today is the result of a public health crisis. Its effect on Americans has been very different, with those in certain industries such as hospitality, tourism, and retail being among the hardest hit. And its effects have been felt far more deeply, with the number of Americans who have lost jobs significantly higher than in the Great Recession.

The ARPA subsidy of 100 percent is also much higher than the ARRA subsidy of 65 percent. On the other hand, subsidized coverage under the ACA was not available as an alternative in 2009.  ARPA also provides heavily (up to fully) subsidized ACA coverage to unemployment-eligible people during 2021.  

Will more Americans take advantage of COBRA when compared with the Great Recession, or will more people gravitate to ACA coverage? There are lots of factors that weigh in, including deductibles, out-of-pocket maximums, and provider networks. These are factors that, on average, favor continuing coverage under COBRA. But each person’s individual circumstances and choices will vary, and the shape and speed of the hoped-for economic recovery will also play a significant role. We’ll find out soon.

Would you like to learn more about this round of COBRA subsidies? Check out our Benefits podcast episode and subscribe today!

The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.