What to Do When Your COBRA Subsidy Ends

I lost my job at the beginning of the year, and I started receiving the government subsidy that helps me pay my COBRA health-insurance premiums soon after the stimulus law was passed. Now my nine months of coverage are almost up, and I’m expecting my premiums to jump from $455 to $1,300 when I get my bill this month. What should I do?

The stimulus package, which included a 65% subsidy for COBRA premiums, has provided much-needed help for millions of workers laid off between September 1, 2008, and December 31, 2009. The law was passed in February 2009, so the nine months is expiring for many people who signed up early, and more people will be losing the subsidy every month. You can keep health insurance through COBRA for up to 18 months after you lose you job; but once the subsidy ends, the cost of premiums will more than double -- from an average of $389 per month to $1,111 per month, according to Families USA.

Several bills in Congress now would extend the COBRA subsidy to people who lose their jobs after December 31, 2009, and might extend the length of the subsidy from nine months to 15 months.

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Kathleen Stoll, director of health policy for Families USA, expects Congress to pass some form of COBRA–subsidy extension after the holiday break. If a bill does pass, it is not clear whether it will provide back payments for people whose subsidies have already expired. Or Congress could pass a version that extends the COBRA subsidy to people who lose their jobs after December 31 but that doesn’t extend the nine-month limit.

Because so much is up in the air, people whose subsidies have expired or are about to expire may want to pay the COBRA premium at the full rate for at least a month while they wait to see what happens. “Even though it could be challenging for people to keep paying their premium, I think it’s safer to pay it to stay on COBRA and keep your options open,” says Mike Langan, of Towers Perrin, an employee-benefits consulting firm.

We generally recommend that healthy people compare the cost of individual insurance to the price of COBRA because they may get a better deal on their own. But if you drop COBRA now and buy an individual policy, you run the risk that you may not be allowed to go back on COBRA if Congress extends the subsidy. When the stimulus law was first passed, people who had elected not to take COBRA were allowed to sign back up to take advantage of the subsidy. But there’s no guarantee that will be an option again.

Delaying a decision on COBRA is also a good idea because Congress may pass health-care reform in the next few months. Even though many provisions won’t take effect until 2013 or 2014, a few key items could affect people right away -- such as provisions that could extend COBRA beyond 18 months until 2013 and changes to maximum coverage limits offered by health-insurance policies, says Langan.

By all means, reassess your options in a month or two. If Congress does not extend the COBRA subsidy and you and your spouse still don’t have jobs with health-insurance benefits, look for a better deal on your own, if you’re healthy. You can shop for individual health-insurance quotes from many companies at eHealthInsurance.com, or get help from a health-insurance broker at www.nahu.org.

Got a question? E-mail me at askkim@kiplinger.com.