healthy subsidy

PERSONAL FINANCE

New federal law helps ease the burden for laid-off workers who must take on hefty COBRA payments

March 01, 2009|By EILEEN AMBROSE

Sigrid Kingsbury lost her job recently as a real estate manager, and like many laid-off workers she opted to continue health insurance coverage under her old employer's plan.

And like many, the Severna Park resident was in for a shock.

She used to pay $104 a month for medical, dental and vision coverage while working. Now, she must also pay her ex-employer's share of the premiums. Her cost will jump to $517 a month - for medical coverage only. That's about one-third of her monthly unemployment benefits.

Under the new stimulus law, unemployed workers like Kingsbury will get some help with so-called COBRA premiums. They will have to pay only 35 percent of the cost, while the government will pick up the rest through a tax credit to employers. This subsidy lasts nine months.

For Kingsbury, whose COBRA payments kick in this month, this new perk means a $336 savings and much more.

"With the stimulus package, I can get insurance; without it I can't," the 59-year-old says.

The stimulus package was signed into law Feb. 17, but because employers usually handle insurance on a monthly basis, this is the first month the benefit will become available. (The subsidy is not retroactive for those who have been paying COBRA premiums for months.)

Employers have been trying to gear up for this and will be sending out letters to former workers about the subsidy in the coming weeks. Employers have up to two months to adjust what they're charging ex-employees for COBRA coverage. In the meantime, continue making your full payment as usual and you'll recoup any overpayment later, benefits experts say.

"The overpayment will be used as a credit for future premiums" or will be reimbursed to you if you drop COBRA coverage early, says Wendy Nice Barnes, vice president for human resources with eHealthInsurance.

COBRA, or the Consolidated Omnibus Budget Reconciliation Act, is the federal law that lets you stay under an ex-employer's health plan for up to 18 months, provided you pay the entire premium plus an administrative fee. It applies to companies with 20 or more workers.

Some states, including Maryland, extend COBRA to companies with fewer than 20 workers. So Marylanders who got laid off from a small employer could be eligible for this federal subsidy, too.

To qualify for the subsidy, you must pass several hurdles:

You must have been laid off or involuntarily let go any time between Sept. 1, 2008, and the end of this year. You won't qualify for the subsidy if you quit on your own accord, although you're still entitled to COBRA. (You don't qualify for the subsidy or COBRA if you were fired for gross misconduct, like fraud.)

To get the full subsidy, adjusted gross income must be under $125,000 if single or $250,000 if married and filing a joint tax return. The subsidy starts to phase out thereafter and disappears once income exceeds $145,000 for singles and $290,000 for joint filers.

You also must have been in your employer's plan before you lost your job to qualify for COBRA and the subsidy, says Tom Billet, senior consultant with benefits consultant Watson Wyatt. However, if you decided when you lost your job not to continue coverage under COBRA, you will have a second chance to sign up now to get the subsidy, Billet says.

Another change: Employers often offer more than one health plan at different prices. Usually under COBRA, you're stuck with the plan you had when employed. But the new law will allow you to switch to a lower-cost plan to save on premiums, Billett says.

The subsidy aims to help those who have little choice but to buy pricey COBRA coverage.

So you won't be entitled to the subsidy if you are eligible for insurance through other avenues, such as Medicare or a spouse's workplace plan, says Nice Barnes.

And you must stop taking the subsidy once you qualify for group health coverage elsewhere, such as if you get a new job, Nice Barnes says. Otherwise, you'll get slapped with a big penalty.

The subsidy is expected to cost the government about $25 billion, but it's not clear how many people will take advantage of it.

Only 10 percent to 20 percent of workers usually choose COBRA coverage because of the steep cost, which averages $1,000 a month for a family, Billet says.

Even with the subsidy, the average family will spend $350 a month. "If you're unemployed, that's not an insignificant number," Billet says.

You can often find a cheaper individual policy by shopping around if you're healthy. You might also save money by getting on a spouse's workplace plan. But if that's not an option and you have a pre-existing condition or serious health problem, COBRA will likely be your best bet.

Kingsbury, a cancer survivor, is relieved she'll have insurance at least for the nine months that the subsidy is available. She hopes she can find a job that has insurance before the subsidy runs out. If she can't, she says, "I will go without insurance."

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