Unemployed persons are likely to face rising health insurance cost

The American Recovery and Reinvestment Act (ARRA), passed in February 2009, had launched a temporary Federal Government program in order to subsidize the cost of purchasing health insurance through the previous employer after a layoff. Eligible unemployed persons were supposed to pay only 35% of their COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) premiums and the remaining 65% were reimbursed by the Government through a tax credit.

This plan was supposed to last only for 9 months and it is coming to an end that started in the month of March, 2009.

COBRA subsidy about to end – Probable effects

If the Government subsidy is not extended, then it is expected that hundreds of thousands of Americans will lose the subsidy every month thus forcing them to pay about 3 times more health insurance premiums that what they are paying under the subsidized rate.

According to a recently released report by the advocacy group Families USA, on an average, the unemployed families who’ll lose COBRA subsidies will have to pay about $1,111 per month. With COBRA subsidy, they had to pay only $389 per month. It is quite a sharp increase in the health insurance cost and very few long-term unemployed families will be able to afford the rising cost.

The report also reveals that about 83.4% of the average unemployment check will go towards paying health insurance, which will leave very little money for housing, food or other daily necessities. It has also been found that in some states, the COBRA costs will actually exceed the unemployment benefits.

Another report reveals that for years, about 80-90% Americans were not able to afford the COBRA premiums (amounting to $8,800 per year for an average worker) even though they qualified for the program.

Proposal of Obama Administration

Recently, a spokesperson for the Obama administration has said that the White House wants to extend the heath insurance subsidies. However, finding money for the extension is a major challenge for the Government as the Democrats are struggling to pay for the already planned healthcare service. The stimulus bill has already dedicated $25 billion for just 9 months of COBRA subsidies.

What experts say about minimizing health insurance cost

A recent report proposes another way to tackle the problem of rising health insurance cost. It can be made affordable to the unemployed workers if they get a tax deduction for the medical expenses. However, whereas a tax credit counts dollar-for-dollar against the owed amount, a deduction simply reduces the income. In the past, very few people were able to take the advantage of tax deduction as it allowed no write-off for expenses equal to the first 7.5% of the adjusted gross income.

However, there’s a ray of hope amidst all these constraints. Medical deduction actually covers a range of expenses, right from medical travel, physical therapy to home health care. Therefore, it can be expected that a medical deduction will be able to help the unemployed persons to bear the rising health insurance cost.