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Rep. Pitts Introduces COBRA Affordability Act

Press Release

Location: Washington, DC

Congressman Joe Pitts (R, PA-16) introduced legislation today designed to address the "COBRA Catch 22." The COBRA Affordability Act would allow employed Americans to save before-tax dollars in dedicated savings accounts to pay for COBRA coverage if and when they need it. It would not benefit current COBRA participants.

"The problem with COBRA is that when you need it, you can't afford it," said Congressman Pitts. "I've heard this over and over from people. Constituents asked me to find a solution, and that's what I did. My bill would allow Americans to save up for future COBRA payments tax free. If they never need it, they can roll the account into a retirement account when they sign up for Medicare."

Because of the COBRA Catch 22, millions of Americans who lost their jobs during the current recession found they could no longer afford health insurance, even under COBRA. For the first time ever, Congress paid for emergency COBRA subsidies for many of these people, paying for it with borrowed money. Congressman Pitts voted for the subsidies, which Congress allowed to expire this month.

The COBRA Affordability Act allows currently-employed individuals to contribute up to $2,500 a year to a COBRA Premium Payment Account, on a pre-tax basis. The bill has a cumulative contribution cap of just under $12,000 per individual and just over $27,000 for a family. The caps are indexed to a government measure of medical price inflation.

Before age 65, withdrawals from the accounts are not taxable if used toward COBRA premiums. Withdrawals for other purposes are subject to a 20 percent penalty. Unused funds may be rolled into a retirement account when the account holder enrolls in Medicare.

This bill also allows individuals to enroll in another health plan offered by their employer within the 60-day COBRA election period. This gives newly COBRA-eligible individuals the option to choose a less costly plan, if their employer provides one. Current COBRA rules do not allow this.

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