Is the 65% COBRA Subsidy Going, Going, Gone?

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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.

Published or Updated: March 15, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Stephen says:

    “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.”

    Correction: After the Act was signed into law, there was an eligibility look back period starting September 1st, 2008.

    Regards.

    • DR says:

      Stephen, thanks for the additional information.

  2. Suzanne says:

    I’m going to assume that the 65% subsidy will likely be renewed soon. Given that, I have a question.

    I was involuntarily laid off last year and did get the 65% COBRA subsidy. I work in higher education in a state that provides generous fringe benefits for part-time state workers. So even as a part-time instructor at a university, I got a hefty health insurance package while teaching there. I also teach at another college part time, and I unexpectedly was “temporarily promoted” to full time status and given health benefits this past January.

    So I got the 65% subsidy through January. Then I became ineligible for COBRA when hired full time. NOW the issue is that my temporary contract expires after this semester. I’ll still be part-time at the college, but my benefits disappear.

    IF the COBRA 65% subsidy is renewed, would I qualify a second time for it? I have looked at the law, and it does not mention workers who are laid off twice.

    If anyone knows more about the 65% subsidy and how it would work for someone who already got the benefit previously but then was hired- and then let go- again, please let me know. Ah the joys of semester-long contracts!

    Thanks!

    • DR says:

      Suzanne, as it turns out, it was extended today through March 31, 2010. As for your question, I’m looking into it.

  3. Suzyblue says:

    If the COBRA subsidy ran out on March 1st, am I naive to assume the few in-between days are still covered under the new act, or will there be a prorated additional fee that we will have to pay…?

  4. Tony Novak says:

    I notice that people are increasingly confused by the differences between being eligible for COBRA and being eligible for COBRA subsidies. The two do not mesh evenly and this complicates consumer decision-maiking.

    • Jones says:

      It doesn’t do much good to have a Cobra subsidy wiutoht Cobra coverage. My Cobra expired at the end of February. Cobra needs to be extended to 36 months. The alternative is no coverage due to my pre existing condition or insurance at outrageous rates more than $1000 per month(not good if unemployed)

  5. Suzanne says:

    Tony- You are eligible for COBRA, period, if you lose your job involuntarily. You are eligible for the COBRA subsidy if you lose your job AND do not have access to health insurance from a separate employer (which would include a spouse’s employer who could cover you). So various situations would lead to COBRA subsidy eligibility: You can have other jobs and still get the COBRA subsidy- as long as none of those jobs provide health insurance as an optional benefit. The subsidy expires at the time you become eligible for coverage with a different or new employer.

    Suzanne

  6. Liz says:

    My question is once I have reached my 18 months of Cobra )March 31, 2010) and Senate gives an extension to unemployment and Cobra Benefits does thatt iextend my date out. I am in the After 9/1/08 group that got the 65% off deal.

  7. Liz says:

    My question is: once I have reached my 18 months of Cobra (March 31, 2010) and Senate gives an extension to unemployment and Cobra Benefits does that extend my date out. I am in the After 9/1/08 group that got the 65% off deal.

  8. Ed says:

    If I am laid off and eligable for the Cobra Subsidy and take a job with a company that offers healthcare, but find that the Cobra is cheaper per month and decline the company health insurance. I assume that I am not eligable for any kind of subsidy. If I change jobs and go to a company that doesn’t have health insurance, can I then get the subsidy assuming my 18 months of Cobra has not expired?
    Thanks
    Ed

  9. Scott says:

    I’m hoping someone can help me with a question. My sister was laid off a little over a year ago and she has been paying her monthly COBRA preminiums via the money she receives from state unemployment. Unfortunately, the loss of her job coupled with other factors has triggered a deep depression which has been exacerbated by a new problem, alcoholism. Subsequently, the past year has been filled with countless doctor visits, emergency hospitalized psychiatric evaluations due to suicidal threats, and two separate rounds of substance abuse programs (inpatient & outpatient). Recently, my sister’s primary care physician instructed her to cancel her COBRA insurance due to the high monthly premiums and the mounting co-pays so she could apply for state Medicaid. I would appreciate if someone would be willing to offer me some advice as it relates to whether or not it would be wise to cancel her Cobra given the circumstances. Note: She does not have any assets and she has been living in my home for the past 10 months. Thank you.

  10. Lori says:

    Any talk of of extending the subsidy to cover the full 18 months that we are allowed to have COBRA? I am 4 months away from reaching the 15 months and as a single parent on unemployment, I will not be able to pay the full cost of COBRA coverage, which would be about $650 (individual). My unemployment is $1200 a month and a house note of $566. Please please, let them think of extending it for the full 18 months!!

  11. David Miller says:

    I have been off work since Aug,09 and i am on cobra but was denied cobra subsidy the first time and now i have no income and was denied social security and applied for the cobra subsidy on a appeal and was approved,do i get the back pay that i have been paying for the full cost of cobra and do i have to pay my doctors co-pays when i see him on this cobra?

  12. Wday says:

    I was recently laid off (Feb. 25, 2011) and want to know if I am eligible for the COBRA subsidy now?

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