Recession Strips Insurance from 725,000 Laid-off Workers

Published January 1, 2002

While Congressional leaders and the White House debate an economic stimulus package that supports subsidizing people enrolled in COBRA, a new report says more than 725,000 laid-off workers have lost their health insurance since the recession began in March 2001.

The report, issued by the consumer health organization Families USA, also reports that only one in five people eligible for COBRA actually receives it because they can’t afford to pay for it. According to Families USA, the national average cost of employer-provided family coverage under COBRA, plus a 2 percent administrative fee, is $7,194 per year, or $600 per month.

“Due to the recession, America’s workers and their families are experiencing a fast-growing epidemic of health coverage losses,” says Ron Pollack, executive director of Families USA. “This epidemic is undoubtedly causing havoc to the families most hurt by the recession. COBRA health coverage is a potential lifeline for laid-off workers, but, for most families, that lifeline is out of reach because it is unaffordable.”

Under the federal COBRA (Consolidated Omnibus Budget Reconciliation Act) law, laid-off workers and their dependents can continue their health insurance for 18 months through their former employers if those employers have 20 or more employees. The laid-off worker is responsible for paying the full premium amount, plus an administrative fee of up to 2 percent.

Terrorist Attacks Accelerated Lay-offs

The Families USA report shows that the nation’s economic deterioration accelerated in the wake of the September 11 terrorist attacks. From September 2001 to October 2001, the national unemployment rate jumped from 4.9 percent to 5.4 percent, the largest one-month increase since February 1986. The week ending September 29, 2001, saw 528,000 new unemployment claims across the country, the highest number of new weekly claims since July 1992.

Many of the workers who lost their jobs also lost their health insurance, because 91 percent of people under the age of 65 get their health insurance through their employers. While some regained benefits through their spouses’ plans or other sources, a 1998 United States Census Bureau study found that 44 percent of workers who lose a job become uninsured, at least temporarily.

Based on the Census Bureau’s findings, Families USA estimates that approximately 345,000 workers who were laid off from their jobs in September and October joined the ranks of the uninsured. The report says this figure is probably much higher because it captures only the number of laid-off workers, not their dependents, who also lost their health insurance.

Costly COBRA

The report highlights the failure of COBRA to perform well as a safety net for many laid-off workers because of its high price.

According to Families USA, the national average monthly unemployment benefit is approximately $939. The cost of continuation of coverage under COBRA for a family (about $600 per month) would constitute almost two-thirds, or 64 percent, of the families’ average monthly unemployment benefit.

The Senate Finance Committee has approved a provision in the economic stimulus proposal before Congress to subsidize 75 percent of COBRA premiums for newly laid-off workers.

“States already struggling with their budgets will need additional funding from the federal government to extend health care to those in need,” says Pollack. “Congress must pass an economic stimulus package soon, and it must include health care protections for recently unemployed workers. A package without these protections will put millions of Americans at risk.”

Vicki Lankarge writes for, the Consumer Insurance Guide.

For more information . . .

about COBRA coverage for laid-off workers, see “Know Your COBRA Rights,” on the Web site at