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COBRA, Unemployment May Feel Long-Term Bite of Stimulus Plan

February 17, 2009
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Crafted and pitched as a short-term boost to lift the nation out of a deep recession, the $787 billion stimulus package signed into law by President Barack Obama on Tuesday, February 17, presents employers with policy changes that could have long-term consequences.

Perhaps the biggest example of a short-term fix that could endure is the bill’s provision to subsidize the cost of COBRA, the federal law that allows unemployed workers to extend their employer health insurance. The same also could be said of changes that expand unemployment insurance and health care information technology.

The COBRA subsidy would give employers tax credits for paying a large portion of a former employee’s health care premium. It provides a nine-month, 65 percent subsidy for COBRA premiums for people who lose their jobs between September 1, 2008, and December 31, 2009. The premiums average about $1,000 a month.

While the legislation limits the subsidy to nine months, those familiar with the decision believe it is an example of how the Obama administration could proceed on health care reform: using government funds to push more people into the existing employer-based health care system.

One provision that did not survive Senate negotiations would have made employers responsible for extending health coverage to workers who are 55 or older or have 10 years on the job. Unlike the subsidies, the provision would have been permanent.

It failed in large part not because Democrats wanted to make it permanent, but because it was a policy that could have increased health care costs for businesses by attracting the sickest—and therefore costliest—workers who could not get insurance anywhere else.

Another way the stimulus bill could endure is by launching broader health care reform. It contains $19 billion to establish a national health information technology system to support computerized medical records for every American by 2014. The effort has strong backing in the business community, which views health IT as central to improving health care quality and reducing costs.

The stimulus package also could result in lasting changes to the nation’s unemployment insurance system. Under the legislation, the federal government would fund states to modernize programs criticized by some as plagued by outdated eligibility requirements.
Incentive payments would go to states that have, or would adopt, certain features in their jobless-benefits programs.

Chief among the reforms specified in the act is use of an “alternative base period.” This is designed to get states to consider a person’s earnings in the most recent completed quarter when determining eligibility, which can help lower-wage workers qualify for benefits.

States using an alternative base period could receive additional money if they have or embrace at least two other measures from a list of options. The possibilities include allowing people seeking part-time work to qualify for benefits and not disqualifying individuals from jobless benefits if they’ve left work for a compelling family reason, including the illness or disability of a family member.

The measure also prolongs to the end of this year the emergency unemployment compensation program, which provides up to 33 weeks of extended unemployment benefits to workers exhausting their regular benefits.

The likely effect of the modernization reforms on employers is subject to debate, with one side arguing that a stronger safety net will help businesses by stimulating economic demand amid downturns and another camp worried that firms’ unemployment taxes will rise.

The stimulus bill is being used for initiatives that stalled in the previous Congress, such as expanding assistance for workers who lose their jobs due to global competition.

History has shown that short-term public policy fixes have a way of enduring, both in Congress and in the private sector. Employer-based health care originated when private-sector recruiters, hamstrung by federally imposed wage caps during World War II, began offering workers a little extra. This change was codified when Congress extended tax breaks on employer health care.

Intended as a short-term fix, it has endured. Time will tell whether the ad hoc changes made as part of this stimulus package remain long after the economic crisis recedes.

—Jeremy Smerd, Mark Schoeff Jr. and Ed Frauenheim

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