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Archive for Tuesday, March 10, 2009

Government Web sites explain COBRA benefits in stimulus act

March 10, 2009

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There’s one Web site you need to check often if you intend to benefit from the many consumer provisions in the stimulus plan.

That Web site is irs.gov. It’s essential because several key provisions in the stimulus package aimed at individuals and families are going to be interpreted and implemented by the Internal Revenue Service.

For example, the recovery law includes changes to the health benefit provisions of the Consolidated Omnibus Budget Reconciliation Act, which is commonly referred to as COBRA. The new law includes a new temporary COBRA premium reduction.

If you have questions about the COBRA provisions in the new law, go to the IRS site, and in the search field on the home page, type in “American Recovery and Reinvestment Act of 2009.” This will take you to a page with highlights of the tax-related provisions.

Under COBRA, employers are required by law to offer the option of continuing your health insurance for up to 18 months. Coverage can be extended up to 36 months under some circumstances, such as a divorce, disability or the death of the policyholder.

The problem for many people is that they have to pay the full amount for the COBRA coverage plus an administrative charge. Sadly, many people getting laid off who want to keep their health insurance would face paying a substantial monthly amount to hold on to it. Family coverage can cost on average about $1,000 a month, according to Families USA, a national nonprofit. The average monthly COBRA premium for individual coverage is $388.

The new law takes into account that people were struggling to pay for COBRA, so it allows eligible terminated employees enrolled in their employer’s health plan to get a subsidy to help fund the cost of the health insurance. This has been set at 35 percent of your COBRA payment, for up to nine months. Employers will pay the remaining 65 percent and recoup that money by applying for a credit on their quarterly federal employment tax return. You may also be eligible for the subsidy for group health insurance coverage provided under state laws similar to COBRA.

Qualifications

To qualify for the reduced COBRA payment, you must be involuntarily separated from your job between Sept. 1, 2008, and Dec. 31, 2009. Those who are eligible for other group health coverage (such as a spouse’s plan) or Medicare are not eligible for the premium reduction. There are also income limits.

The premium reduction only applies to periods of coverage beginning on or after Feb. 17, when the law was enacted. You cannot get a refund for premiums paid prior to the law’s enactment.

If your company closed or went bankrupt and there is no longer a group health plan, there is no COBRA subsidy available.

Second chance

There’s another important provision to the COBRA subsidy. If you were involuntarily terminated between Sept. 1, 2008, and Feb. 16, 2009, but you didn’t sign up for COBRA (probably because you couldn’t afford it), or you are no longer enrolled (because you couldn’t afford to keep up your premium payments), you may have another opportunity to elect COBRA coverage, according to the Department of Labor. Your plan is required to notify you of the second election period by April 18, after which you have 60 days to enroll for COBRA coverage with the premium reduction.

For more details on the COBRA subsidy, go to the Department of Labor’s Web site at dol.gov/COBRA. You can also call the Employee Benefits Security Administration at (866) 444-3272.

Comments

Lee Eldridge 5 years, 9 months ago

What a great idea. Companies that are going through a financial crisis faced with reducing staff, are now on the hook for health insurance they already can't afford. So now, a small business reducing their staff will have to FURTHER reduce their staff in order to pay these premiums. This will have two outcomes. One, it will create even more unemployment. And two, small businesses who already struggle with providing benefits such as health insurance, will have to consider dropping health insurance as a benefit altogether. Nice work Washington!

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