8 Questions You May Have About the New COBRA Subsidy

If you've lost a job, the feds might pay 65 percent of your health insurance bill.

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After I wrote about the new COBRA health insurance subsidy that was enacted as part of the economic stimulus package President Obama signed a few weeks ago, more than a hundred readers wrote in asking for specifics. Anxious readers who had lost their jobs wanted to know how they could apply for the subsidy, which will cover 65 percent of laid-off workers' COBRA health insurance premiums if they choose to continue their health insurance under their former employer's plan. The reason for their concern is no mystery: The federal law known as COBRA that permits them to extend their health insurance also requires them to pay 100 percent of the premium, plus an administrative fee of 2 percent. For people trying to get by on an unemployment insurance check of around $325 a week, shelling out $1,000 or more a month for health insurance is often not feasible. Even a helping hand of 65 percent doesn't make COBRA cheap, but for some the subsidy will at least make coverage affordable.

Unfortunately, passing the law is only the first step in the process. A significant amount of bureaucratic machinery must grind into gear before the federal government is ready to actually start paying for the subsidy. In fact, consumers may not get relief until May, says Cheryl Fish-Parcham, deputy director of health policy for Families USA, a consumer advocacy organization. If that happens, people who've paid their full premiums for March and/or April will be able to get either a refund for premiums paid since February 17, when the bill was signed, or a credit against future premiums.

Although many specifics about the subsidy rollout remain to be explained, with the help of Fish-Parcham and materials from the Department of Labor and the House Education and Labor Committee, I've answered most questions readers posed. DOL has a website that it plans to update as more information becomes available, and you can call the department with any questions at (866) 444-3272. Of course, the government is the definitive source on how the subsidy works, but what follows should fill in some of the blanks while you wait for more complete guidance.

When does the subsidy start?

Reduced premiums will generally begin in March, the first full month after the bill was signed. Who's eligible to receive the subsidy?

Laid-off employees and their family members who are eligible for and elect COBRA between September 1, 2008, and December 31, 2009, can receive the subsidy. In addition, eligible employees who lost their jobs between September 1 of last year and February 16 of this year who either didn't sign up for COBRA or who signed up but dropped the coverage have another chance to sign up and get the reduced premium. Watch your mail: Your plan should notify you by April 18 that you have this second opportunity to sign up. Once you receive the notice, you have 60 days to elect the coverage. There are also income limitations. To be eligible, your modified adjusted gross income in the year you receive the subsidy can't exceed $125,000 ($250,000 for families). If it does, you'll have to repay all or part of the amount of the premium reduction.

How do I sign up?

You have to fill out enrollment forms that you receive from your health plan or employer. If you haven't heard from them yet, call and ask when you can expect to get the documents. I was laid off after September 1 and have been paying for COBRA. How do I get the cheaper rate?
Contact your former employer or insurer and ask them to send the documents so you can sign up for the subsidy. As discussed above, if you've already made a March or April payment, your employer or insurer will reimburse you or give you a credit against future premiums. Once the system is up and running, you'll be responsible for paying 35 percent of the premium, and the government will cover the other 65 percent.

Do I have to stick with the same health plan I had if I sign up for subsidized COBRA coverage?

If your company offers a cheaper plan, you may be able to switch. It's up to the company. If it's allowed, the company has to notify you of that option. Then you have 90 days to elect to change. My employer wasn't covered under federal COBRA law. Am I eligible for the subsidy?

You may be. Many states have continuation coverage, "mini-COBRA" laws, that allow workers at companies with fewer than 20 employees to extend their health insurance with their former employer, similar to the federal COBRA law. The subsidy generally applies to workers at small companies in these states and to public employees. However, states with continuation coverage are not required to offer a second election period to workers who didn't sign up originally or who signed up and dropped the coverage. They may choose to do so, however. You can call the Department of Labor at (866) 444-3272 for more information. If I can get group coverage from another source, can I still choose subsidized COBRA coverage?

No. If you're eligible for coverage under your spouse's health plan or Medicare, for example, you can't get the premium reduction. Likewise, if you get a new job that offers group coverage, you can't hang on to the subsidized COBRA coverage. How do I appeal if I get turned down for the subsidy?

Either the Department of Labor or the Department of Health and Human Services will determine whether you're eligible. The process for filing an appeal is still being ironed out. Check the DOL website or call (866) 444-3272 for more information.

For more information, check out recent posts about the subsidy and how to minimize COBRA costs.