The COBRA Blog

Should Subsidies Apply to Marketplace Plans Only?

Posted by Robert Meyers on Tue, Apr 08, 2014 @ 12:04 PM

COBRA-PoliciesThere’s been a controversy in recent news concerning subsidies in the public marketplace. While it sounds crazy, it’s possible the federal exchange subsidies could get junked.

According to a recent NY Times article:

“Plaintiffs in the case, Halbig v. Sebelius ... say the plain language of the law makes subsidies available only to people who buy insurance through marketplaces established by States” (source).

To make their case, the plaintiffs are calling into question an IRS rule which allows individuals to claim subsidies when buying insurance in the federal marketplace. At first glance, it looks like a loophole argument: obviously the Affordable Care Act did not intend to make it impossible for people to access subsidies through the federal exchange.

Still, it’s an argument that two out of three federal judges on a panel seem willing to hear out.

The Subsidy Debate

The ACA uses subsidies to guarantee affordable insurance to every American. As of this February, 4.2 million Americans had purchased insurance. Of those, 2.6 bought it through the federal exchange, four-fifths of whom qualified for subsidies.

If shoppers in the federal exchange are no longer eligible for subsidies, it could pose a serious problem for the ACA. Bear in mind, only 14 States have their own exchanges; the federal marketplace serves the remaining 36. To cut subsidies out of the federal marketplace would be to cut them out of 36 States. Could the ACA survive such a blow?

Here’s a different question. Why must the subsidy be limited to public exchanges (State or federal) in the first place?

As long as a private plan meets or exceeds ACA requirements, why can’t Americans also benefit from the subsidy when buying from a private insurer?

The COBRA Case

As it stands, if former employees purchase COBRA policies, they cannot benefit from the ACA tax credit at the end of the year.

Even if they lose their jobs mid-year after already meeting their deductibles, or if they’re in the middle of treatments, if they’re depending on the subsidy to afford coverage, they’ll be forced to switch plans and start over.

Low- and no-income people are the ones who most need the ACA subsidy. These are the same people that COBRA is designed to serve. Yet as a private plan, COBRA is not an option for those who need subsidy to purchase insurance, despite the fact that in many cases, COBRA is by far the least disruptive option. COBRA allows former employees and beneficiaries to keep their existing health care plans and provider networks, and allows continuations so they don’t have to restart their deductibles or out-of-pocket expenses with a new plan mid-year.

The Bigger Issue

As the COBRA case makes it plain, sometimes the best insurance option is not available in the public marketplace.

This poses a bigger question: Is it right to withhold private plans from low-income Americans?

The ACA was developed with the goal of getting everyone insured. If a plan outside the marketplace better meets a family’s needs – and if that family is relying on the subsidy to afford insurance at all – why shouldn’t the family have access to the plan that serves them best?

Once again: what does it matter where the insurance comes from, as long as it meets ACA requirements?

Stay informed! This issue could become a game-changer for unemployed customers, based on how the courts decide to rule. Let us know your thoughts on this issue by posting a comment below.

Tags: cobra administration, COBRA policies, Marketplace subsidy, ACA subsidy

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