New Rules for COBRA

COBRA is the federal program that allows workers to hold onto their health insurance benefits after a job loss. The new law subsidizes 65 percent of COBRA premiums for some workers for up to nine months. News of the subsidy has generated confusion and frustration in addition to a bit of relief.

COBRA coverage typically is available for 18 months but at a steep price; the formerly employed person usually pays 100 percent of the premium plus a 2 percent administrative fee. The unfortunate fact is that this is when the average person is least able to afford the full premium on his/her own. Not only has the person just lost her job but her health insurance premiums typically double under COBRA coverage. That is also why only 10 percent of eligible persons take advantage of COBRA coverage. The coverage is expensive, but it can be an important option for people who may not be able to find new coverage due to preexisting conditions.

There are a few 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. It’s available only to workers who lose their jobs between Sept. 1, 2008 and Dec. 31, 2009.

- 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.

The Salt Lake Tribune published an informational article on the new law’s effect on business. It was also picked up by the AARP Bulletin Today. Diversified’s Diane Malin was quoted in the SL Trib article:

Benefits threatened » Diane Malin, an account executive and human resource specialist at the Diversified Insurance Group, said the federal subsidy penalizes companies for going “above and beyond.”

If the government is offering to pay more than half of a laid-off worker’s COBRA premium, it no longer makes sense for a company to chip in as part of a severance package, she said.

“There’s no incentive for them to do that any longer,” Malin said, “and there’s actually a disincentive if they do.”

Worse yet, about 11 percent of companies surveyed by the Employers Council said they may not be able to continue offering health insurance to their workers at all. A company that doesn’t offer benefits to begin with isn’t obligated to extend enrollment in a group plan via COBRA.

That avenue may become increasingly appealing to the 22.8 percent of companies that indicated in the survey that they’re planning to reduce their work forces in the “near future.”

But, said Engar, “I think most employers want to do the right thing, and for so many of them, having to lay people off has been very, very difficult for them. They want to take care of their people as much as possible.”

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