COBRA Premium Assistance in the Stimulus Bill
Saving Money by Reviewing Health Insurance Coverage Options
Mar 17, 2009
The Consolidated Omnibus Budget Reconciliation Act passed in 1986, known as COBRA, had thousands of provisions. But the Act has been primarily known for mandating that employers continue to provide health care coverage for their employees after termination.
The law requires United States employers to allow former employees to purchase healthcare for up to 18 months after separation of service, at a rate as high as 102% of the employer's cost, which includes an administrative fee.
Since 1986, healthcare premiums have increased substantially, and newly displaced workers have in many cases been unable to afford coverage, which could run from $400 for singles to over $1,000 per month for families.
Employer coverage may be less expensive than a similar individual policy. Personal coverage may be found that is less expensive, but will likely include higher deductibles and less covered services.
Time Frame for Enrolling in COBRA
COBRA coverage can begin as soon as the date of termination. An important provision in COBRA is that eligible employees have until 60 days to elect to participate, and participation is retroactive to the date of termination.
This can be important if the employee is seeking another position with employer health insurance. The employee can postpone election, and defer any covered medical services that are not an emergency.
If the employee has a medical emergency in this period where expenses are greater than the premium, he can opt to pay the COBRA. If he finds another position (or obtains personal coverage) where coverage begins before the 60 days, he can forego the COBRA.
Great care must be taken to fully understand the implications of going without coverage, especially where there are chronic illnesses or children.
Example of Purchasing COBRA
If an employee is terminated February 1, the employee has until April 2 (60 days) to elect to purchase COBRA. If he finds a position quickly, for example March 1, and his new insurance takes effect April 1, he can delay electing COBRA until April 1 knowing it will be retroactive back to February 1.
If there has been no need for healthcare services by April 1, the employee is free not to purchase COBRA. If, for example, an illness which necessitates coverage occurs on March 15, the employee has until April 2 to pay the premium, and he will still be covered for the illness on March 15.
Impacts of the 2009 Stimulus on COBRA
In order to make the COBRA coverage more affordable in the economic crisis, the American Recovery and Reinvestment Act of 2009 allows for a 65% reduction in COBRA premiums in some cases. (US Department of Labor).
The assistance is available for up to nine months for those that elect COBRA coverage. The termination has to happen from September 2008 to December 2009. Premium reduction is available starting when the Act was passed, on February 17, 2009.
The 65% reduction will help make COBRA coverage more affordable during the economic crisis. Terminated employees will still have difficult choices to make and need to review their options carefully.
