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Obamacare Is Slashing Those Crazy COBRA Premiums

Conservatives say the law crushes liberty. See why this woman disagrees.

Photo courtesy of Donielle Scherff

Conservatives like to say that Obamacare is crushing liberty. Donielle Scherff, a 37-year-old Virginia woman with lupus, disagrees. Thanks to the Affordable Care Act, she's paying less for her health insurance and she's been able to start her own business. Her story is complicated and full of trade-offs, as real stories always are. But it’s a window into how the new health care law is helping a group of people who haven’t gotten the media's attention yet. It’s the people who used to rely on COBRA.

COBRA is the program that allows you to stay on your employer’s policy, or your spouse’s employer policy, even after you no longer qualify. It’s called COBRA because of the legislation that created the program, the Consolidated Omnibus Budget Reconciliation Act of 1985. Since Ronald Reagan signed the bill into law, it’s helped millions of laid off workers, widows and widowers, and other dependents hold onto health insurance—in many cases, until they were able to find alternative coverage through a new job or some other source.

But if you’ve ever had to use COBRA, then you probably know about it's downside: the price. When you get coverage through work, your employer pays part of the premiums directly. Although the money is more or less coming out of your pocket—economists would describe it as wages you’re not getting—you don’t actually see or pay that money. Then, if you lose your job and want to stay on COBRA coverage, you have to pick up both your share and the employer’s share. As an employee, you might have paid just $1,000 a year for an insurance policy. As a laid-off employee, you might suddenly have to pay $6,000. (Those numbers are actually pretty close to the averages, according to the latest Kaiser/HRET annual survey of employer plans.)

Lots of people can’t afford that, particularly when they’re unemployed, which is why lots of people who are eligible for COBRA don’t even use it. One study, published by the Commonwealth Fund in 2009, suggested that less than 10 percent of laid-off workers could afford to pay premiums under the program. Even those who use COBRA can end up in trouble eventually. In general, COBRA coverage can last no longer than 18 months if you've lost your job—or 36 months if you've lost your status as a dependent. After that, you have to find your own insurance.

Doing that in the old, pre-reform market was famously difficult. Although federal law required insurers to offer insurance to people who had kept up their COBRA payments, regardless of pre-existing condition, the law allowed insurers to charge whatever they wanted. This situation not only made life difficult for people who had lost jobs and loved ones. It also deterred people from striking out on their own, to start businesses. If you had any reason to think an insurer would charge you highly inflated rates—say, because you had a serious, chronic disease—you probably weren’t going to leave your job in the first place. 

Scherff says she was one of those people. She had a 9-to-5 position, at a firm that provided consulting services to companies seeking government contracts. She liked the job, she told me, but she wanted to start her own business and work out of her home—in part, because of her illness.

Lupus is a chronic inflammatory disease, in which the immune system essentially attacks other parts of the body. Its causes are unclear and it has no cure. Symptoms include everything from rashes to joint pain to shortness of breath. Scherff says she’s managed to stay pretty healthy since getting diagnosed about seven years ago, but only because she’s been attentive to her condition—something that was a constant struggle while she was keeping regular, full-time hours: “With lupus, two of the most important things are getting enough rest and I have to be responsive to how I’m feeling." Frequently, she says, she had to make a choice—go into work while feeling lousy, causing her to wear down and miss work in the future, or stay at home, at a cost of falling behind at work. “You’re not an ideal employee if you can’t be there from 9 to 5 in a lot of businesses.”

The obvious solution was to work on her own, as an independent contractor: “Being able to set my own schedule, to work freelance, makes me not just happy but healthy,” she says. But until Obamacare came along, the only way for her to get reasonably priced coverage was through COBRA. Even then, it was expensive—about $550 a month—and she'd have to shop for new coverage after 18 months. (Scherff provided me with documentation to verify these details, as well as additional sources to corroborate the broad contours of her story.)

Now, thanks to the Affordable Care Act, she’s found insurance through the online marketplace for Virginia. After waiting through the initial technological problems, she shopped and settled on a gold plan, which means it’s among the more generous options available. For this plan, from Kaiser Permanente, she pays $344 a month. If you do the math, you'll see that's roughly $200 less than the monthly COBRA premiums. 

That's not the whole story, because you can’t compare insurance policies by looking at premiums alone. You also have to look at what the plans cover—and what out-of-pocket expenses remain. In these respects, Scherff's new plan isn't necessarily better. 

Her old employer plan, administered by Cigna, had a broad network of doctors. Kaiser famously restricts beneficiaries to providers who are full-time employees. That may not be a bad thing—in many parts of the country, Kaiser is considered a model of high quality medical care, because the tightly integrated system fosters more coordination and maintenance of chronic disease. Scherff, in fact, says she was happy to join Kaiser. But many people bristle at such restrictions. Opting for a plan that had more choice, undoubtedly, would have cost more.

Another, potentially more important difference between the two plans is the cost-sharing. So far, Scherff feels like she is saving money even when she uses medical care, because she pays less for her prescriptions. But, overall, the limit on out-of-pocket spending in her new plan is higher than it was in her old plan. If she ends up using a lot of medical care—something that's very possible with lupus—she could end up spending more out of her own pocket. That could reduce or maybe even wipe out the savings she’s getting from the lower premiums, though it's hard to be sure.

But Scherff feels she would still be better off if that happened, because the new policy is still more comprehensive and secure than what she could have bought on her own previously. She’s particularly mindful of how the Affordable Care Act might help her in the future, if her condition deteriorates. “If my disease gets worse, it could be the difference between being disabled and being able to work,” she says. “It opens up lots of possibilities to be productive and contributing to society.”

If you look through recent media clips, you won't find many stories like these. One of the very few writers who has noticed is Andrew Sprung, who blogs at XPostFactoid. But the number of people better off with Obamacare, rather than COBRA, is probably significant.

According to the most reliable government surveys, enrollment in COBRA has vacilated between 2.5 and 3.5 million people over the last few years. On the whole, the premiums for Obamacare marketplace plans are probably lower than the premiums for employer plans. And while in many cases those lower prices will correspond to less comprehensive coverage or more restricted provider access—as it apparently does for Scherff—a large number of people buying coverage on the marketplaces will also get subsidies that discount the prices much more. Others will qualify for Medicaid, which is basically free.  

By itself, these facts don’t clinch the case for the Affordable Care Act. An honest assessment of the law must include not just the “winners” but also the “losers”—the people paying more for coverage, for example, or those who lost plans they liked. You read a lot about those people in the fall and, while many of the stories were exaggerated, some were not. But one reason it’s been so hard to settle the debate over Obamacare is that many of the winners are more or less invisible. Nobody has noticed them, let alone listen to their tales, even though they have some pretty good stories to tell.