Cobra Health Insurance Subsidy: Here’s who gets it, and how

The federal subsidy of COBRA health insurance for laid-off workers contained in the economic stimulus bill has been generating a lot of reaction from readers – not all of it positive.

COBRA is the federal program that allows workers to hold onto their health insurance benefits after a job loss. The new law will subsidize 65 percent of COBRA premiums for some workers for up to nine months. But news of the subsidy has generated as much confusion and frustration as it has relief.

COBRA coverage typically is available for 18 months but at a steep price; the former employee usually pays 100 percent of the premium plus a 2 percent administrative fee. Although the coverage is expensive, it can be an important option for people who may not be able to find new coverage due to preexisting conditions.

Coverage gap issues are especially acute for older workers, who may have been forced into premature retirement due to the economic turmoil but haven’t yet turned 65, when they become eligible for Medicare.

Here are the key things to know about the new COBRA subsidy:

– Timing and eligibility. The new federal subsidy will cover 65 percent of premiums for nine months. But it’s available only to workers who lose their jobs between Sept. 1, 2008 and Dec. 31, 2009. This provision is generating quite a bit of heat from readers who lost their jobs earlier–and understandably so. The limitations appear to be a concession to limit overall cost of the subsidy program.

– Filing deadlines. Generally, you need to file for COBRA coverage within 60 days of leaving your job. But under the economic stimulus law, if you lost your job but didn’t elect COBRA, you’ll have 60 days to make an election and get the subsidy after you receive a notification from your old employer of the subsidized rates and that you are again eligible.

– The subsidy. If you’re eligible, you’ll pay premiums equal to 35 percent of the total to your former employer’s plan; the plan will receive the difference through reduced payroll taxes that they would have paid to the federal government, or through a refund under certain circumstances. The subsidy is limited to nine months.

– Income caps. The subsidy is only available to individuals with maximum adjusted gross income of $125,000, and $250,000 for married couples filing jointly.

– Small business and other exemptions. COBRA generally is not available to people laid off from very small companies, since the federal law exempts businesses with fewer than 20 employees from participating. It’s also not available if your former employer never offered health insurance, terminates its plan or is liquidated.

Other routes to COBRA. If you aren’t eligible for the new subsidy, there could be another path to COBRA coverage. If you lost your job due to competition from exports or overseas outsourcing, the government will pay up to 80 percent of COBRA premiums through the Trade Adjustment Assistance Reform Act. Under this law, you can receive monthly payments or a year-end tax credit to offset COBRA premiums for up to three years. The subsidy already was available before the stimulus bill passed, but the new law boosts the subsidy rate from 65 percent to 80 percent.

If you’re not eligible for any COBRA subsidies, look into other coverage alternatives. Can you get on a spouse’s employer-based health plan? Can your state insurance department or county health department tell you about any state or local programs to provide affordable health coverage? Veteran’s benefits may also be an option.

If none of these avenues work, shop for an individual policy. If you’re in good health and live in a state where the insurance marketplace has strong competition, you may be able to find lower premiums than you would under COBRA.

These policies tend to be more expensive for older people, since individual policies are age-priced. And, the coverage may be less extensive than under your former employer’s plan. One way to keep premiums down is to consider a plan with a higher deductible–but be sure you have enough money saved to pay health expenses until you meet the deductible.

It’s also important to pay close attention to the specific insurance offered to you, according to Cheryl Fish-Parcham, deputy director of health policy for Families USA, a non-profit consumer advocacy group.

“The advertised price may not be the price for you depending on your age or pre-existing conditions. You could be offered an insurance contract that says explicitly that the insurer isn’t going to cover a certain preexisting condition, or it may have general language on preexisting conditions. She urges consumers to contact their state insurance departments for details and guidance.

Copyright 2009 Tribune Media Services