The Case For Including COBRA Subsidies And Increased Federal Medicaid Spending In Extenders Bill

As it returns to work today, the Senate will take up the tax extenders bill passed by the House before the Memorial day recess. Democratic leaders divided the House bill into two parts, after members couldn’t agree on how much of the new spending would be paid for, and stripped provisions extending a 65 percent COBRA subsidy for people laid off after May 31 and a six-month extension of the increase in the federal government’s contribution (called FMAP) to the Medicaid program. The $116 billion bill included a package of tax extenders and a short-term patch to the sustainable growth rate (SGR) formula:

$39.5 billion extension of unemployment benefits through November (not offset), $53 billion in tax extensions, a new summer jobs program and $1.15 billion in payments to black farmers who suffered discrimination. (offset)

$23 billion and includes a 19-month “doc fix” that delays a cut in Medicare reimbursements to doctors. Doctors will receive a 2.2% raise for the rest of 2010, retroactive to June 1, followed by another 1% raise in 2011. But in 2012, physicians are scheduled to receive a 33% cut

Democrats in the Senate will need to attract one Republican vote to pass the measure, but remain uncertain about the size of the senate measure. “One group of Democratic senators, including Kent Conrad (D-ND) and Ben Nelson (D-NE), is expected to seek changes that would further reduce the bill’s effect on the deficit, perhaps by cutting certain benefits. Other Democrats might hinder progress by seeking alterations to certain tax provisions in the bill,” CQ reports.

An array of interest groups are pressuring Congress to act swiftly. The American Medical Association, which is warning that another pay cut would cause doctors to drop Medicaid patients, has launched “a new, multimillion dollar nationwide advertising campaign urging Americans to contact their senators” and ask Congress to pass a permanent fix to the SGR formula. But since a permanent solution would cost north of $200 billion, the organization will likely have to settle for a temporary patch and live to fight another day. Meanwhile, Families USA is arguing that if Congress doesn’t include provisions extending the COBRA subsidy and FMAP expansion in the extenders package, many lower income Americans will drop their doctors.

Without the COBRA subsidy, Families USA estimates that “unemployed workers nationally will have to spend, on average, 84.3 percent of their monthly unemployment insurance checks on COBRA premiums to keep their families covered.” States will react to the reduction in Medicaid federal dollars by cutting the program and swelling the ranks of the uninsured, the group predicts. “This outcome is ironic for at least two reasons,” Families USA writes. First, eliminating the COBRA subsidy would increase the number of uninsured in the interim period between now and 2014, undermining the intention of the new health care law. “Second, the relevant help that was initially offered through ARRA will come to an end even though the unemployment rate today exceeds the rate when ARRA was first adopted in February 2009.”

In short, eliminating additional health care spending may save money in the short term, but could very well increase health care costs by 2014, if the government has to subsidize coverage for a larger (and possibly sicker) uninsured population. It’s also worth pointing out that it makes little sense to cut health care benefits for the unemployed during a period of high unemployment rates and as a growing number of discouraged job seekers are leaving the labor market.

The COBRA measure cost $8 billion, while the FMAP increase totaled $24 billion.