We got a few questions following our post “COBRA Subsidy in Stimulus Package“. Here is the in-depth explanation of how this works. We will start with a crash course on the COBRA program and then describe how the subsidy will change things.
COBRA is designed to help people maintain their group health insurance following involuntary job loss (pretty much everything except gross misconduct). If you used to get group health insurance through your employer, and that firm had at least 20 employees, then you are eligible for COBRA. In many states, eligibility extends down to firms as small as two employees.
Employers are able to negotiate discounted rates because they can bargain on behalf of large numbers. If an individual looked to purchase a comparable plan, it would cost far more. Many employees don’t realize this because their employer pays all or most of their health insurance premiums. When they get canned, however, they find out the hard way how pricey insurance can be. With COBRA, you traditionally had to pick up 100 percent of the tab to maintain your health insurance. Although this rate is significantly cheaper than the rate you would pay on your own, it can still be hundreds of dollars each month.
The subsidy, as provided in the stimulus package, will pay for 65 percent of the cost of COBRA coverage each month for up to nine months. This amounts to thousands of dollars per person. For example:
When I got canned, I received a letter from my former employer explaining my COBRA option. It would have cost me about $575 per month for COBRA, but the alternative was even worse: an individual plan would have run me about $750 per month. To enroll, I would have needed to make my initial payment of $575 directly to my former employer. With the stimulus package, I would only need to pay $201.25 each month (35 percent of $575) because the government would pick up the rest. Over nine months, this would amount to a savings of over three thousand dollars!
Anybody who got canned after September 1st, 2008, is eligible for this subsidy.
Instructions:
When you lose your job, your employer is legally required to tell you about how to enroll in COBRA if you are eligible (see above). You will make payments each month directly to your former health insurance plan administrator (usually you human resources department). If you already opted out of COBRA, you are still eligible. Contact your the HR department of your former employer for instructions on how to enroll.
February 27th, 2009 at 10:17 am
I’m really confused about: 1)Pre-existing medical conditions and the “Certificate of Health Insurance Portability”—If an employee couldn’t afford Cobra in Sept. 08, and was in the middle of testing (say thyroid problem),then picks up this Cobra Subsidy now, then finds out they have a thyroid cancer, would they be disqualified for coverage due to the break in their policy premiums? and 2)the 9 month window…Could they accept the Cobra Subsidy in May09 and run it into 2010?–Or would they lose 3 months Cobra subsidy and it would still lapse Dec.09? Any clarification appreciated.-Pat
March 16th, 2009 at 8:44 am
Is my former company required to bill me net amount after deducting stimulus rebate?
March 17th, 2009 at 3:29 pm
Is it true that if you made over $75,000/yr before you were canned you are not eligibe for your former employer to pay 65% of your COBRA? That is what my former HR person just told me. She said based on my former salary that I didn’t qualify for the new deal & still have to pay the 102% of the cost of my healthcare. Could this be true?????
March 17th, 2009 at 6:38 pm
Hi Wendi: I just re-read the bill and I do not believe your HR rep is correct. You should be eligible as long as your gross income was less than $125,000 ($250,000 if you are married and filing jointly.)
To Ed: Yes. Your employer gets its subsidy in the form of tax breaks and rebates, and should bill you your share d(35%) directly.
March 24th, 2009 at 3:02 pm
I was just told by Ceridian, who administers the plan for the former employer, that on April 17, a letter will be sent. I would then have to apply for the subsidy. If approved (and they do not give guidelines for approval), then I would receive a ‘credit’ towards future Cobra payments. This still means that I would have to pay the full Cobra payments until the subsidy would kick in. And there’s no guarantee I’ll get the subsidy. I don’t understand — anyone have info on these mysterious guidelines? If I should get a new job with insurance before all the ‘credit’ is used up, what happens to that? Very vague info given by Ceridian.