Insights & Advice

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The COBRA Premium Reduction

In this economy of growing unemployment and health care costs the American Recovery and Reinvestment Act (ARRA) addressed one important consideration for individuals and families who have been hit by lay-offs. Unfortunately it created as many questions as it did answers.

The Act which was passed last month expanded eligibility and reduced premiums for The Consolidated Omnibus Budget Reconciliation ACT of 1986 (COBRA). This is the long-winded title for a Federal health benefit that permits qualified terminated (laid-off) employees to continue their health care coverage until they find another job that provides employer-sponsored heath insurance. The COBRA coverage lasts for 18 months (36 months if you are disabled).

The first thing you should know about the ARRA’s COBRA subsidy is it only applies to individuals who lost their job on or after September 1, 2008 through December 31, 2009. Workers who became eligible for COBRA benefits through other types of qualifying events are not included. So if your hours were cut to make you ineligible for health benefits or you were divorced from a spouse who had coverage or you are a dependent child of a parent who meets any of the above criteria then you don’t make the cut. If you earned $125,000 or more annually ($250,000 if married and filing jointly) you are also out of luck. Finally, to qualify, your former employer must continue to provide group health insurance for current employees.

Prior to the act, a COPRA- covered person paid 102 percent of the cost of the health coverage she had been receiving at her company ((the 2% goes toward administrative fees). This health coverage can be extremely expensive reaching $400 or more for an individual and over $1,200 per month for a family. Remember too, that the individual paying for COBRA benefits is now unemployed. How many of the 8.5 million Americans (the Congressional Budget Office estimate) using COBRA benefits can continue to afford such coverage when they have already sustained the income loss of their major breadwinner?

Under the new act the government will provide a subsidy for these COBRA premiums for the next nine months beginning on the date the bill was passed, February 17, 2009. The government will pay 65% of your monthly COBRA bill directly to your ex-employer in the form of a payroll tax credit, once the worker has paid 35% (her portion) of the bill.
There is also an extended election period for those laid-off employees who declined COPRA initially but now, because of the subsidy, may want to reconsider coverage. If so, you only have a sixty-day window starting on February 17 to contact your employer and elect coverage.

Since most of the onus is on the employer to satisfy the regulations of the act, certain actions should be taken immediately if you haven’t already. After determining whether your company has any employees (including dependents) eligible for the subsidy, decide whether the COBRA benefits offered now are the same coverage offered the employee at termination. Many companies have begun offering different and less comprehensive coverage in the last few months to their employees. Finally, establish a tracking mechanism for the nine-month period of the 65% subsidy, for obtaining tax credits for these amounts and also for ending the subsidy.

The U.S. Department of labor has more information about COBRA and who qualifies for the reduction in premiums. You can call and speak to a Benefits Advisor at 1-866-444-3272 or visit the website www.dol.gov/ebsa/COBRA.html

Posted in A Few Dollars More, Financial Planning