Lawmakers in Congress stopped negotiations over whether to enact additional COVID-19 relief programs, including a proposal to use taxpayer funds to subsidize health insurance for individuals in between jobs.
Senate Majority Leader Mitch McConnell (R-KY) adjourned the chamber until September 8, reducing the likelihood of additional government unemployment benefits in the near future. However, Congress passed the CARES Act in March and extended $600-per-week federal unemployment benefits through the end of September.
In a July 16 letter addressed to President Donald Trump, McConnell and House Speaker Nancy Pelosi (D-CA), and Thomas Donohue, the chief executive officer of the U.S. Chamber of Commerce, urged lawmakers to use taxpayer funds to pay for COBRA health insurance premiums of individuals laid off by businesses due to COVID-19 concerns.
The national COBRA insurance program, established in 1986, gives unemployed workers the option to remain covered on employer-provided health insurance after being laid off. Currently, COBRA continuing-insurance premiums are paid by an individual, an employer, or a combination of the two.
Government Dollars Drive Decisions
Government economic relief packages actively encourage business owners to fire employees, says Casey Mulligan, an economics professor at the University of Chicago and a former Council of Economic Advisers chief economist.
“When you subsidize unemployment, you get more unemployment because people don’t go back to work as quickly,” Mulligan said. “You also get more layoffs. Layoffs are a painful thing, but they happen all the time. In good economic times, there are millions of separations every month and it’s often a sad situation. Businesses try to put off layoffs, but, when you know if you make the separation now, there’s a bunch of cash coming your way, then you might as well do it now because it’s less painful than normal.”
Using taxpayer money to pay COBRA premiums will accelerate layoffs and increase unemployment rates, Mulligan says.
“If they make it a 100 percent subsidy, we can’t afford anything in that ballpark,” Mulligan said. “COBRA is something that happens when you separate from a job. What they did in the previous stimulus is the only ones who got COBRA were the ones who were laid off—you’re subsidizing layoffs and you get more layoffs.”
Bailing out COBRA would incentivize business owners to fire employees by reducing the cost of separation, Mulligan says.
“Businesses talked openly about arrangements where, if you were to separate someday through a layoff, the business would help you out with your health insurance through COBRA,” Mulligan said. “Now, the federal government says ‘you know what, you don’t need to help your employee out anymore, the federal government has got all the help.’ That’s a perfect time to do your layoffs, because you don’t have any health insurance burden.”
Jesse Hathaway (firstname.lastname@example.org) is a policy advisor for The Heartland Institute.