APRIL 2, 2009 ISSUE
New Changes To COBRA Unemployment Health Insurance
Federal Government Will Temporarily Pay Portion of Premium Costs
If a layoff or unexpected change in your employment status has affected your family in recent months, health insurance benefits are often the first to be sacrificed. When finances are strained, many find they cannot afford the high cost of coverage once the costs are no longer shared with an employer.
COBRA is an alternative health coverage plan offered to persons who have been laid off or fired from a job where they are participants in that company’s health care plan. Once job termination occurs, persons have 60 days to sign up for COBRA insurance coverage. The program allows the former employee to continue receiving insurance at the group plan rate, but until recently, the former employee was required to assume the full cost of the insurance premium.
The federal economic stimulus bill includes changes to COBRA to help alleviate the cost of continuing health coverage with government-subsidized health insurance premiums.
COBRA, passed by Congress in 1986, stands for Consolidated Omnibus Budget Reconciliation Act. COBRA gives certain employees, retirees, spouses and dependant children the right to temporary continuation of health coverage at the full cost of group rates.
Employers often partially subsidize the cost of employees’ insurance premiums. Although COBRA coverage can mean higher insurance expenses because persons must assume the full cost of premiums, COBRA is often a less expensive option than individual healthcare plans.
This law generally covers group health plans maintained by 20 or more employees in its prior year. It also applies to many plans in the private sector and those enrolled in state and local government healthcare plans. This law does not cover plans sponsored by the federal government or certain church-based organizations.
Upon enrollment in a group health plan with an employer, it is the responsibility of the insurer to make you aware of your rights to COBRA at the event of separation from that employer. Once employment is terminated and healthcare coverage discontinues, it then becomes the responsibility of the employer to notify the former employee of their eligibility under COBRA.
The February 17, 2009, economic stimulus package, or American Recovery and Reinvestment Act, states that persons laid off since September 1, 2008, are eligible for increased health insurance benefits under COBRA. Under the new law, the ex-employee continues to pay their portion of the insurance premium to the employer or insurer, and the employer makes up the remainder. Although the employer pays initially, they will receive a payroll tax credit within a month to offset that cost.
If the amount paid out by the employer is insufficient to cover the COBRA expense, the U.S. Treasury will pay the remaining amount. This means that COBRA recipients will only be required to pay 35 percent of the total cost of coverage instead of the full amount. The government will pay the remaining 65 percent.
Premium changes only last for nine months and are subject to income limitations. Coverage will cease to persons who become covered by another insurer, including Medicaid.
Even if you were employed by a small business—defined as fewer than 20 employees—and COBRA does not apply to you based on previous regulations, you are eligible for a health insurance subsidy.
The state of North Carolina enacted a special rule called “State Continuation” to take care of this issue. This rule states that as long as you had healthcare through a company for 90 days or more and other criteria is met, you qualify for this subsidy. State Continuation laws in North Carolina allow employees who have been terminated from their job, regardless of reason, to continue coverage under their employer’s group health plan after termination or loss of eligibility. State Continuation applies to fully insured plans purchased in the state of North Carolina, although other states also provide this coverage. State continuation is only applicable for 18 months, and unlike COBRA, does not provide for extensions beyond this time. State Continuation policies vary from state to state.
Some who have lost their jobs may find that 35 percent of the premium cost is tough to manage with no income. But, says Ann Quinlan, co-owner of Insurance Plus in Foscoe, it’s important to try to continue health insurance coverage.
“In considering whether to elect continuation coverage, you should take into account that a failure to continue your group health coverage will affect your future rights under federal law,” Quinlan said. “First, you can lose coverage of pre-existing conditions, which can be applied to you by other group health plans if you have a 63-day gap in health coverage, and election of continuation coverage may help prevent such a gap. Second, you can lose the guaranteed right to purchase individual health coverage that does not impose a pre-existing condition exclusion if you do not elect continuation coverage for the maximum time available to you.”
If COBRA doesn’t seem like the best alternative, temporary insurance plans are available that can cost less than continuing your group plan privately but still protect you in the event of an unexpected hospitalization, although the benefits themselves may be quite different. For more information, contact a local insurance representative.
For more information about your insurance rights upon termination of employment, click to www.dol.gov/dol/topic/health-plans/cobra.htm.
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