As businesses shut down and millions of Americans are laid off from their jobs in response to the COVID-19 pandemic, one question policymakers have not yet adequately addressed is how to best help the millions of people losing health insurance from their employer.
The Economic Policy Institute estimated on April 2 that at least 3.5 million people lost their employer-sponsored health insurance in the prior two weeks, and that was before the Department of Labor estimated that millions more have lost their jobs since then.
The scale and scope of this economic crisis make a lot of existing options unpalatable. COBRA premiums that allow people to keep their employer-sponsored insurance are far too expensive.
Permanent Obamacare or Medicaid expansion (as proposed by Speaker Nancy Pelosi) have less to do with the crisis than they do with the long-term policy goals of some lawmakers.
One option that could attract bipartisan interest is a COBRA subsidy. Pelosi proposed a 100 percent COBRA subsidy, meaning the federal government picks up the entire COBRA tab. The speaker received a boost from Sen. Elizabeth Warren (D-Mass.) and Rep. Ro Khanna (D-Calif.), when the two progressive lawmakers recently proposed a 100 percent COBRA subsidy for 15 months.
However, there are legitimate concerns this option would not only be extraordinarily expensive but also create problematic incentives.
Congress passed a 65 percent COBRA subsidy in 2009, in response to the Great Recession, but government studies indicate that take-up was low, given the high costs unemployed people had to pay for even 35 percent of COBRA coverage.
A 100 percent subsidy would lead to no cost for workers, but would cost taxpayers tens of billions of dollars — and COBRA coverage is much more expensive than it was 10 years ago. Another concerning element of the COBRA subsidy, as proposed by House Democrats, is that it may unintentionally create an incentive for employers to lay off their workers because it opens up the benefit to furloughed workers.
If there are employers who recently furloughed employees, it would cost them less to lay off those employees and get them an 100 percent COBRA subsidy than it would to keep them furloughed and have to pay an employer share.
Luckily, there’s a better way forward: a new proposal for Pandemic Health Accounts, or PHAs.
These accounts are designed to be a short-term, targeted benefit from the federal government to recently displaced workers and their families, with long-term, prudent savings opportunities for these workers and their future employers down the road.
They would be less expensive than COBRA subsidies and more temporary and targeted than Obamacare or Medicaid expansion, but would still offer millions of Americans the support they need and the choice they want for their health coverage. Here’s how they would work.
The federal government would fill PHAs with a one-time, $2,000 benefit for eligible individuals and $6,000 for eligible families. These amounts are not a random pair of numbers — they were chosen to help individuals or families cover a significant part of four months of the average employer-provided health insurance premium.
The PHAs would be set up with a health insurer or financial institution of the recipient’s choice, much like Health Savings Accounts operate today.
PHAs would differ from HSAs in a few important ways, though. Most important, PHAs could be used on health insurance premiums (including COBRA, marketplace plans, or short-term limited duration insurance) whereas HSA dollars usually cannot go to premiums. PHAs would face the same contribution limits that HSA holders currently face.
Even after the COVID-19 crisis, though, both workers and their employers could contribute to these accounts as a way to cover continuing medical expenses and de-link health coverage from one’s employment status. This could help millions of workers and their families weather the next economic or public health storm, whenever that may be.
There are a wide range of potential costs for PHAs, depending on how many people are eligible for the program. But one midrange estimate is $24 billion — that’s if 6 million people are eligible for the benefit, half for the individual account amount and half for the family account.
That’s nothing to blink at, but may be less expensive in the short and long run than COBRA subsidies, Obamacare expansion, and Medicaid expansion.
Some might reasonably ask how the government can pull off such a program in a fast amount of time.
While policymakers would need to work together with both public and private sector stakeholders to stand up PHAs and provide displaced workers with immediate relief, leaders in the current administration have already successfully implemented a similar program model.
Vice President Pence and Centers for Medicare and Medicaid Services Administrator Seema Verma were key architects of Indiana’s POWER accounts, HSA-like vehicles for Medicaid expansion in the Hoosier State. These accounts were implemented by members of the current administration and approved by members of the last administration, giving them a bipartisan seal of approval.
PHAs have similar bipartisan potential. While some progressive policymakers have resisted HSA-like models in the past, in favor of government-led programs, PHAs actually have the potential to shore up the marketplaces set up by the Affordable Care Act — if new PHA holders take their dollars there, that is.
PHA beneficiaries could also opt for short-term plans typically favored by conservative policymakers. The point is not to write a law that benefits “red” or “blue” teams, but to empower consumers and their families to choose an option that works best for them at an extraordinarily difficult time.
There are three principles guiding the PHA model: (1) narrowly tailor a solution to folks who need the most help during the pandemic; (2) help displaced workers bridge the gap between their lost coverage and their next health plan; and (3) put consumers, not government, in control.
Congress should consider the PHA option for a likely Phase 4 relief package, especially as a strong and prudent alternative to the expensive, expansive proposals offered by some progressive lawmakers.
The federal government can help millions of people who urgently need health coverage without breaking the bank for taxpayers or creating new, permanent changes to the law.
