I received a question from a reader, who was recently laid off, about what additional health insurance benefits (via COBRA) he would qualify for under the Obama economic stimulus package, also called the American Recovery and Reinvestment Act of 2009. I covered this briefly in other economic stimulus posts, but this piece aims to provide more detail and clarifications based on information from the Department of Labor and IRS – which can be confusing and hard to sort through. So here is a summary looking at the revised COBRA health care subsidies and eligibility criteria under the stimulus package:
– Workers who have lost their jobs may qualify for a 65 percent subsidy in COBRA continuation premiums for themselves and their families for up to nine extra months. Eligible workers will still have to pay 35 percent of the premium to their former employers.
– To qualify, a worker must have been involuntarily separated between Sept. 1, 2008, and Dec. 31, 2009. Workers who lost their jobs between Sept. 1, 2008, and enactment (Feb. 17, 2009), but failed to initially elect COBRA because it was unaffordable, get an additional 60 days (up to April 17th) to elect COBRA and receive the subsidy.
– This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.
– Applying for the premium reduction. If you were covered by an employment-based health plan on the last day of the employee’s employment, the plan should provide you a notice of your eligibility to elect COBRA and to receive the premium reduction. The notice should include any forms necessary for enrollment. You may also want to contact your plan directly to ask about taking advantage of the premium reduction.
– The subsidy requirements apply to all plans subject to the COBRA requirements. This includes all group health and self-insured plans.The subsidy is generally available for COBRA continuation coverage under any group health plan, including medical, dental and vision coverage. However, it does not apply to a flexible spending arrangement (FSA) offered under a cafeteria plan.
– You are not eligible for the premium reduction if you are eligible for other group health coverage (such as through a new employer’s plan or a spouse’s plan) or Medicare. This applies anytime during coverage. For example if your spouse get’s a job with health care coverage during your 9 month coverage, you are then ineligible for the program.
– The COBRA premium subsidy is not retroactive. The earliest it can apply is for the first period of coverage beginning on or after Feb. 17, 2009, the date of enactment of the bill.
– You cannot take this credit in your 2009 tax return. The subsidy is provided to an assistance-eligible individual only in the form of reduced COBRA premiums. That is, the assistance-eligible individual only has to pay 35% of the premium in order to receive COBRA coverage. The employer is reimbursed for the remaining 65% through a credit on its payroll tax returns.
What is COBRA? According to the Department of Labor, COBRA provides certain former employees, their spouses and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves. To be eligible for COBRA coverage, you must have been enrolled in your employer’s health plan when you worked and the health plan must continue to be in effect for active employees (i.e. if your company goes bankrupt, you will not be covered). In any case always shop around to get the best coverage/rates.
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~ Help for Unemployed and Under Insured Workers (COBRA) in the Economic Stimulus Package
~ For further details and supporting documentation, visit the IRS and the Department of Labor websites