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Understanding COBRA subsidies
As the number of unemployed Americans continues to rise, so does the number of individuals and families without health insurance — a major concern for employed and unemployed American people alike already troubled by economic uncertainty.
Now COBRA appears all over the news with the promise of relief to those struggling to pay its relatively hefty premiums. According to a recent report by the Commonwealth Fund, the average cost of COBRA continuation is $4,704 for an individual and $12,680 for a family. Such premiums significantly consume unemployment checks.
Relief seemed to arrive on February 17 when President Barack Obama signed the American Recovery and Reinvestment Act (ARRA). An estimated $24.7 billion of the $787 billion economic stimulus package will subsidize COBRA premiums, reducing them by 65 percent. The government estimates that this provision will help 7 million people maintain their health insurance. However, eligibility requirements exist.
For starters, what is COBRA?
COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) is federal legislation that allows certain employees, retirees, spouses, former spouses and dependent children to continue purchasing health insurance at group rates for up to 18 months if they lose their jobs or are otherwise terminated.
Read on to learn more about COBRA
Who qualifies for the subsidy?
In order to qualify, you must have participated in your former employer’s group coverage at the time of your layoff and you must meet all of these requirements:
• You must be eligible for COBRA coverage through your employer as the result of federal or state law at any time during the period beginning September 1, 2008, and ending December 31, 2009.
• You were involuntarily terminated between September 1, 2008, and December 31, 2009, as a result of the current economic recession. You are unlikely to qualify if you were terminated for gross misconduct. If you are uncertain about the nature of your termination, contact Department of Labor’s Employee Benefits Security Administration’s Benefits Advisers at 866-444-3272.
• Your modified adjusted gross income is less than $125,000 per year ($250,000 if you are filing jointly). If you think your income exceeds these amounts, contact your tax preparer or the IRS at 800-829-1040
• You elected COBRA to take coverage when it was first offered to you or during the additional election period.
How do I apply for the subsidy?
If you were covered by an employment-based health plan on the last day of your employment, your plan should notify you of your eligibility to receive COBRA and the premium reduction. That notice should include all necessary enrollment forms. However, you may also contact your plan directly.
How will I be reimbursed for the 65 percent premium reduction?
You will not be directly reimbursed. You are only responsible for paying 35 percent of your COBRA premium. Your former employer/insurer pays the rest and is compensated by the federal government.
What if I didn’t opt in for COBRA upon my termination?
If you were involuntarily terminated between September 1, 2008, and the act’s effective date, February 17, 2009, but did not sign up for COBRA, you have an additional 60 days to opt in and receive the subsidy.
Health plans should notify individuals about the second-chance election period, in addition to providing forms and enrollment information, no later than April 18, 2009. You have 60 days from the receipt of that notice to enroll in COBRA and receive the premium reduction. However, you can contact your former employer before the notice arrives and say you want to opt in. In either case, your coverage begins with the first period of coverage beginning on or after February 17, 2009.
What if I opted in but later dropped my coverage?
If you were involuntarily terminated, elected coverage and then dropped it between September 1, 2008, and February 16, 2009, you are eligible to participate in the second-chance election period. You should receive notification about the second-chance election period, in addition to forms and enrollment information, from your health plan no later than April 18, 2009. You then have 60 days from the receipt for that notice to enroll in COBRA and receive the premium reduction. However, you can contact your former employer before the notice arrives and say you want to opt in. In either case, your coverage begins with the first period of coverage beginning on or after February 17, 2009.
How long can I receive the subsidy?
Participants can receive the 65 percent premium reduction for up to nine months. While the law allows up to 18 months of COBRA coverage, and sometimes as many as 36 months, the insured person will pay in full for coverage extending beyond the nine-month subsidy limit.
However, in some cases you will not be eligible to take advantage of the subsidy for the entire nine months. If one of the following occurs, it would end at the earliest occurring event:
• Your employer no longer offers any group health plan to employees
• You fail to make your premium payment
• You become eligible to receive health care through Medicare or another group health plan such as the plan of a new employer or a spouse’s plan.
When you become eligible for coverage through Medicare or another group health plan, you must notify the plan administrator immediately as you will no longer be eligible for the premium reduction. Continuing to take advantage of the subsidy after becoming ineligible could result in a penalty equal to 110 percent of the premium provided to you after your eligibility ends.
What if I am determined ineligible by my plan?
You may apply for a review of the denial by the Secretary of Labor or by the Secretary of Health and Human Services (HHS) depending on your plan. The departments will review your application and make a determination within 15 business days.
The Department of Labor will handle appeals related to private sector employers who are subject to ERISA’s COBRA provisions. HHS will handle appeals from all government employees both federal and non-federal, as well as for those individuals covered by so-called mini-COBRA insurance policies offered by employers with fewer than 20 employees.
For more information or assistance determining where to file your appeal, visit www.dol.gov/COBRA or contact DOL at 866-444-3272.
What if employer went out of business and did not continue health plan?
When an employer terminates all health plans, COBRA continuation coverage will generally not be available.
What are my other options?
Despite the subsidy, COBRA may not be a viable option for you, whether due to ineligibility or cost. Consult a licensed insurance professional for additional options, which may include short-term medical insurance or individual health care coverage. Talk to a licensed insurance agent to learn more.
For more information about the COBRA subsidy, call 866-444-3272, or visit the Employee Benefits Security Administration’s dedicated COBRA Web page.
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