by

Gail Shearer
Director, Health Policy Analysis
Washington Office

and

Susanna Montezemolo
Esther Peterson Fellow
Washington Office

Introduction

As the economic situation in the United States worsens, more and more workers in America are losing their jobs, and others are just a pink slip away from doing so. Although the economy was slowing before the tragic events of September 11, the attacks have exacerbated economic times for hundreds of thousands of workers. The airline industry alone expects to lay off approximately 73,000 workers.(1) During the week of October 6, 2001, 468,000 people filed new unemployment insurance claims, compared with 315,000 for that same week a year earlier.(2)

Many low- and moderate-income workers live paycheck-to-paycheck. It is not surprising that most such workers do not have the means to pay for health insurance benefits after losing their jobs. Congress must act now to ensure that workers who are laid off through no fault of their own can afford health insurance. Doing so will have advantages beyond helping those who directly benefit. It will make working Americans feel more secure about their current and future economic situation. This is especially important since most workers in America realize that they are just a pink slip away from being uninsured.

To help all displaced workers maintain health insurance coverage, Congress is considering several proposals that would subsidize health benefits offered through the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and in some cases would expand the Medicaid program for those not covered by COBRA. Since COBRA requires displaced workers to pay the entire premium cost (previously paid by both the employer and employee) plus an administrative fee, health insurance remains unaffordable for most. This leads to several problems and unintended consequences with COBRA, many of which would be mollified through a partial or full subsidy of COBRA premiums and a Medicaid "wrap-around."

Congress should take advantage of the current broad public support to help those hurt by the economic downturn in order to ensure that all laid-off workers in America can afford health insurance. As Congressman Bill Thomas (R-CA), Chairman of the House Ways and Means Committee, affirmed in a floor statement on September 21: "[W]e are working today to make sure that not just the airline employees who have suffered and are being laid off, but every American who is laid off, should have the ability to get assistance on their health insurance needs. . . . That is the least we should do."

This report explains some of the problems with current law, which affords some laid-off workers the ability to continue coverage under their former employer's health insurance plan through COBRA but does not provide the means to pay for it. It also explains the advantages and disadvantages of the various subsidy proposals.

Consumers Union believes that Congress must promote stability and fairness for those out of work and their families through a measure that also boosts the economy. An adequate bill must include a partial federal COBRA subsidy for all laid-off workers, an additional subsidy for low-income laid-off workers, and Medicaid coverage for those ineligible for COBRA. Such a bill must apply to all workers laid off since September 11, not just those directly affected by the attacks.