Cobra Provisions Put Medical Insurance Within Reach

By Vincent J. Quatrini, Jr., Esq.

COBRA is the federal law that requires employers of 20 or more employees to allow separated employees to purchase medical insurance through the company group plan for up to 18 months after separation from work, at up to 102% of what the company is paying for that insurance.

Up until now, that 102% was well beyond the financial reach of almost all displaced workers. The new stimulus law provides real financial relief to displaced workers who want to stay in the company plan.

Under the new law, the government has agreed to pay 65% of COBRA premiums for people who suffer involuntary loss of employment between September 1, 2008, and December 31, 2009. The subsidy is limited to nine months and available only to those without another source of group health insurance.

Eligibility for the subsidy is limited to those with annual incomes under $125,000 for individuals and under $250,000 for those filing jointly.

Individuals who lost jobs after September 1, 2008, but who did not sign up for COBRA at that time will get a second chance to do so. Employers must send these former workers a notice by mid-April. These workers have 60 days after receipt of the notice to pay into the plan.

The subsidy money is not sent to individuals, but is given to the employer in the form of an offset against payroll tax liability. Individuals pay their 35% of the premium to their former employer, and the government will credit the remaining 65% of the premium against the former employer’s payroll tax due.

For most people, the subsidies will start March 1. If you are already in the COBRA plan with your former employer, you will not receive reimbursement for any COBRA payments already made.

Though specific procedures for compliance with the new law are still being worked out, you should expect to receive some notification from your former employer in the next 45 days. If you do not, we suggest you contact your former employer at that time. If you need more information, try the Employee Benefits Security Administration, a unit of the U.S. Department of Labor, at 866-444-3272.