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New COBRA Rules

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.