Update: Today, President Obama signed into law an extension of the COBRA Subsidy through March 31, 2010
This is a good news, bad news, and then maybe some more good news kind of story. You’ve no doubt heard of COBRA (Consolidated Omnibus Budget Reconciliation Act), which according to the Department of Labor “gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.”
The downside to COBRA is that it’s expensive. If you qualify for COBRA, you have to pay the entire premium out of your own pocket, even up to 102 percent of the cost to the plan. And that brings us to the federal COBRA subsidy.
If you were laid off involuntarily after February 19, 2009 — the day The American Recovery and Investment Act of 2009 was signed into law, you’ve been eligible for a 65% subsidy on your COBRA insurance. In other words, you’d only have to pay about 35% of the cost of the plan. But that good deed came to an end effective March 1, 2010.
As it stands now, anyone laid off on March 1, 2010 or later will not only be ineligible for the subsidy, but may get hit with higher COBRA premiums. Congress once before extended the COBRA subsidy and is considering another extension of the eligibility period. But no bill has yet been passed or signed into law.
The numbers look like this: American families who do not qualify for the subsidy will spend an average of $13,332 annually for COBRA premiums, compared to $4,668 annually if the subsidy remains. Should the subsidy disappear, many of those laid off after February 28, 2010 may find COBRA unaffordable and join the 46 million uninsured in this country.
So if you are laid off after February 28, 2010, what are you options? Here are some top-of-mind questions to help with the details, as well as the alternatives to COBRA:
Question: When will we know if the eligibility period has been extended?
Answer: Hard to say. An extension of the COBRA subsidy was included in President Obama’s proposed budget for fiscal 2011, and Congress is said to be considering legislation to make it happen. But no one should bank on the extension passing and risk being caught without options. It’s important to explore what else is out there. This can take time — to research, and to receive approval. So it’s best to start doing the homework now.
Question: I stopped working in February, but was not technically “laid off” until after February 28, 2010. Do I qualify for the COBRA subsidy?
Answer: It commonly occurs that the last day of work and your termination date don’t coincide. For example, you might stop working in February, but are being paid for vacation time that keeps you on the books into March. In that case, you may not qualify for the subsidy. Talk to your HR folks to establish your exact termination date. You want it to fall prior to February 28, 2010.
Question: If the subsidy is not extended, what options do I have?
Answer: With any luck, you’re eligible for health insurance through a spouse’s group plan. If not, consider your own individual or family health insurance plan. Depending on the state you live in, you may find private coverage at a monthly premium less expensive than even subsidized COBRA. According to the Kaiser Family Foundation, the average cost of a subsidized COBRA policy would be $398 per month for a family and $144 for an individual. Compare that to a 2009 survey of 316,000 eHealthInsurance customers showing that half of all family health insurance policyholders paid less than $329 per month and half of all individual health insurance policyholders paid less than $132 in monthly premiums.
If you expect to be back on an employer-sponsored health plan again within six months and want interim coverage (in case of the unexpected), you might also consider short-term health insurance.
Question: What if I have a pre-existing medical condition or can’t afford my own plan?
Answer: It’s possible, in most states, to be declined for private coverage due to pre-existing conditions, whereas you can’t be turned down for COBRA based on medical history. Therefore, if you have a pre-existing medical conditions and can afford COBRA, enroll! If only one of your family members has a pre-existing medical condition, you may wish to consider enrolling that person in COBRA while covering others through individual or family plans.
If you cannot afford COBRA or private health insurance, reach out to the Foundation for Health Coverage Education to learn about the government-sponsored options in your area: www.coverageforall.org or 800-234-1317.
Question: Should I apply for a private plan while waiting to see if the subsidy will be extended?
Answer: Since individual and family health insurance plans are paid month-to-month, they can be canceled at any time. Many, however, could come with an application fee of as much as $30. (Sites like eHealthInsurance.com help you identify which plans require such fees.) So if you are approved for a privately-purchased plan and then learn that the COBRA subsidy eligibility period is extended, you may drop your individual or family plan in favor of COBRA as long as you are within your COBRA enrollment period (usually 60 days from termination of employment).
This is a good time to mention that COBRA coverage is not designed as a permanent health insurance solution. Currently, the COBRA subsidy only provides 15 months of assistance, and your overall eligibility for COBRA expires three months after that. That said, you may find that an individual or family health insurance plan provides a more permanent form of coverage at a similar price.