Cobra Health Insurance

Cobra Subsidy Expiring, Final Eligibility Explained

As the year’s end approaches, Congress is considering whether to extend the government subsidy for health benefits continuation under COBRA or state continuation coverage, for which the federal government has picked up almost two-thirds of the tab this year for continuing health insurance benefits for workers who have lost their jobs involuntarily. The original bill has an end date of Dec. 31, 2009, but three bills are pending that propose extending and making changes to continuation and the subsidy.

The U.S. Department of Labor has issued new guidance to dispel possible confusion regarding who can receive the subsidy through the end of the year. The guidance says that a former employee must satisfy two conditions laid out in the law:They must have been involuntarily terminated by the end of the year; and They must become eligible to receive COBRA or state continuation by the end of the year.

It is the second condition above that is not widely understood among employers but could result in laid off employees not being eligible for the subsidy. It could happen if an employer allows laid off employees to remain covered under the regular group health plan through the end of the month of termination, a common practice. As a result, those individuals would not be eligible for COBRA or state continuation until Jan. 1, 2010, missing the cutoff date for entitlement to the subsidy by one day.  Employers are encouraged to consider these parameters when determining end dates of regular plan coverage for recently terminated employees.

It is important to note that while enrollment in the subsidy program ends Dec. 31, the subsidy itself does not end. Assistance eligible individuals who qualify for the subsidy receive the subsidy for the total time allowed by COBRA (or state continuation coverage) from their date of eligibility.

The results of a survey conducted by Hewitt and Associates in August found that the percentage of eligible employees who actually enroll in COBRA has doubled from previous years since the subsidy went effect, indicating that the program has been effective for those who have been recently laid off.

Eligibility already expired at the end of November for many participants who have received the nine-month subsidy since it first became available in March. For those, their December bill could have reflected a payment due of 100 percent of the premium, which would have been three times more than they were paying with the subsidy. As a result, many might decide this is a luxury they can’t afford — instead joining the ranks of the uninsured.

Some self-insured employers have not changed their billing yet, wagering that an extension will be forthcoming. Benefits experts predict an extension will be passed, even if not for all of 2010.

The timing and vehicle for Congressional action are uncertain, but it cannot be ruled out that the extension could be included in the health care reform legislation. Other possible vehicles are a stand alone bill or a package of legislation on another topic, such as employment. If something is not passed by end of the year, Congress still has the ability to make an extension retroactive so that there is no period of ineligibility for newly terminated workers and current participants can be reimbursed for full premium payments made.

If an extension is not approved, individual plans may be less expensive than continuation coverage, in some cases, as a stop-gap for individuals searching for new employment following a layoff. Search for individual plans using health insurance quotes .

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