ASK KIM


Get COBRA Coverage for Less

Kimberly Lankford

The stimulus law provides a subsidy to help workers who lost their jobs pay for this expensive health-insurance option.



The stimulus bill provides a 65% subsidy to help pay for COBRA health insurance for workers who lost their jobs. But I haven’t found an explanation of how to collect this benefit. Could you tell me how to claim the subsidy? My COBRA coverage costs more than $300 per month.

A federal law called COBRA generally requires companies that have at least 20 employees and offer health-insurance benefits to continue offering coverage to workers who leave or lose their jobs. If you're paying for COBRA coverage, ask your former employer about any administrative steps you need to take to receive the subsidy.

Then the process should be easy: You'll pay 35% of the COBRA costs, and your former employer will cover the other 65%. The government will then reimburse the employer through a payroll tax credit. For example, a monthly COBRA bill of $300 should drop to $105, and the subsidy would cover the remaining $195.

The rules get trickier if you lost your job on September 1, 2008, or later but didn’t sign up for COBRA coverage because it was too expensive. In that case, you’ll get a second chance to elect COBRA coverage and benefit from the subsidy. Employers will be sending notices to former workers who are eligible for the COBRA subsidy. Those people will have 60 days after receiving the notice to sign up for COBRA coverage and start receiving the subsidy.

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However, many employers are waiting for the Department of Labor to issue a model notice before sending their notices, says Kelly Traw, of Mercer, a benefits-consulting firm that deals with many employer health-insurance plans. The Department of Labor has until mid March to release its model notice. It wouldn’t hurt, though, to contact your former employer now.

Does this new law extend my COBRA eligibility?

No. You can qualify for COBRA health benefits for up to 18 months after you leave your job. And not everyone is eligible for COBRA -- the federal law applies only to companies with 20 or more employees (although some states have "mini" -COBRA rules requiring smaller companies to continue offering health benefits to former employees). COBRA does not apply if the company stops offering health coverage or shuts down entirely. (See What Happens If Your Employer Goes Broke? for more options in that situation.)

Does everyone with COBRA coverage qualify for this subsidy?

No. To qualify, you must have been involuntarily terminated from your job between September 1, 2008, and January 1, 2010, and ineligible for coverage under your spouse’s plan or your parents’ insurance or Medicare. Also, your income for the year must be less than $125,000 for individuals and $250,000 for families to qualify for the full subsidy (the subsidy phases out entirely once your income reaches $145,000 for single filers or $290,000 for joint filers).

How long does the COBRA subsidy last, and what happens when it expires?

The subsidy lasts only for nine months, and it is not retroactive. If you’ve already had COBRA coverage for many months, you won’t receive a subsidy for the months before the law was passed.

After you’ve received the subsidy for nine months, you’ll have to pay the full bill yourself as long as your COBRA eligibility continues. So a bill of $105 per month for subsidized coverage would go back to $300 a month.

At that point, you may want to consider your other options. If you’re healthy and live in a state with a competitive health-insurance market, you could get a better deal with an individual policy. You can get price quotes for individual coverage at eHealthInsurance.com or find a local agent through the National Association of Health Underwriters.

See Keeping Health Coverage After a Job Loss for more information about finding your own health insurance.

Got a question? Ask Kim at askkim@kiplinger.com.



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