by

Gail Shearer
Director, Health Policy Analysis
Washington Office

and

Susanna Montezemolo
Esther Peterson Fellow
Washington Office

Executive Summary

Workers in America are just a pink slip away from losing their health insurance. Two out of three non-elderly American adults have health insurance that is directly linked to employment. For these people, the loss of a job usually means the loss of health insurance. Providing short-term subsidies for the newly-laid off is one small step that would offer critical relief to a particularly vulnerable population and would simultaneously give our economy a shot in the arm.

This Consumers Union(1) report presents five reasons why Congress should include health insurance subsidies for displaced workers in economic stimulus legislation:

1. Laid-off workers lose their income and their employers' contribution to their health insurance. Most simply cannot afford to pay for continued health insurance coverage, and some are not even eligible to do so.

2. A gap in health insurance between jobs can result in inadequate insurance in the future, since new employer-based coverage can impose preexisting condition exclusions and new waiting periods if there has been a gap in coverage.

3. The absence of health insurance often results in delayed or denied health care and means financial devastation to families with modest means.

4. Guaranteeing continued health insurance will help boost consumer confidence, which will contribute to the economic recovery.

5. Subsidizing health insurance premiums for displaced workers not only targets relief to a vulnerable population, but also provides a substantial stimulus for the economy.

The economic stimulus package that was recently reported out of the House Ways and Means Committee is generous with tax breaks for corporations, but is extremely stingy in proposed health insurance subsidies for laid-off workers. We urge Congress to design a subsidy with the following features:

• The federal subsidy for laid-off workers should be between 50 percent and 75 percent of the premium. Although ideally Congress would pass a full subsidy for laid-off workers, the Congressional Budget Office's preliminary estimates show that this would be very expensive - costing considerably more than $25 billion.
• A state option to provide additional premium subsidies should be included on a sliding-scale basis for individuals and families with income up to 450 percent of the federal poverty line. Although the federal subsidy will help many workers obtain health insurance, many low-income displaced workers will still be unable to afford COBRA continuation of coverage without an additional subsidy.
• A state option to provide Medicaid coverage for laid-off workers ineligible for COBRA coverage should also be included to ensure that these workers can obtain affordable health insurance.
• Funding should come from general revenues, not from funds that have been earmarked by Congress to provide coverage for low- and moderate-income children through the State Children's Health Insurance Program (SCHIP). Shifting SCHIP funds merely takes away money from health insurance for children to fund health insurance for laid-off workers. The purpose of this legislation should be to temporarily increase the total available money for health insurance, not to take away money for children's health insurance.
• The program should aim to provide short-term coverage to between 5 and 10 million displaced workers, which represents a large portion of laid-off workers needing a subsidy. Budget realities are likely to preclude a larger subsidy or covering a larger number of people.
• The program should encourage broad risk-pooling, as is normally the case with employment-based coverage, but not with individual coverage. Doing so will slow the rate of increase in health care costs and may even result in lower premiums for insured people.

__________

1 Consumers Union, publisher of Consumer Reports magazine, is an independent nonprofit testing, educational and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition and other consumer concerns. Since 1936, our mission has been to test products, inform the public and protect consumers.