COBRA Premium Reduction

March 25th, 2009 Posted by Amelia

As daily readers of this blog know, the ARRA or American Recovery and Reinvestment Act of 2009 provides for extended COBRA coverage at reduced cost for many unemployed workers.

 

COBRA, or the Consolidated Omnibus Budget Reconciliation Act of 1985, permits employees to extend their group health insurance coverage for up to 18 months when they lose coverage due to unemployment, a reduction in hours, divorce, or similar circumstances. COBRA also applies to dependents who lose group health insurance coverage for similar reasons, or due to the employee’s death. Employees who are fired for gross misconduct are not eligible for COBRA coverage.

 

The big news is that ARRA allows employees to pay just 35% of their usual COBRA premium. It also gives eligible employees a special period to sign up for COBRA coverage. This COBRA premium reduction covers any worker who has lost their job between September 1, 2008 and December 31, 2009.

 

Under the COBRA Premium Reduction, the employee can pay just 35% of the usual COBRA premium. The employer pays the remaining 65% of the premium, and then takes a tax credit on the quarterly federal payroll taxes. In this way, the federal government is picking up the tab on 65% of the employees group health insurance premium, and there is no gap in healthcare coverage.  

 

The COBRA Premium Reduction under the 2009 stimulus package applies for a maximum of 9 months.

 

Employees who did not opt to take advantage of COBRA coverage have a second chance under ARRA. They can sign up during a Special COBRA Election Opportunity period. This election period began on February 17, 2009. Every plan administrator or employer must inform eligible employees and ex-employees of this special election period in writing.

 

Employees who were terminated prior to February 17, 2009 must receive written notice of the COBRA Premium Reduction before April 18, 2009. The employee has 60 days from the time of notification, to sign up for COBRA. Even if an employee previously declined COBRA, they can now sign up for it with the reduced premium.

 

Currently the federal COBRA coverage applies only to employers with 20 or more workers on group health insurance. However, several states have similar laws mandating extended insurance coverage for smaller employers. In those states only, the COBRA premium reduction will apply to benefits under the state plans, as well.

 

Employees who are eligible for coverage under a spouse’s group insurance policy, or under Medicare, do not qualify for the COBRA reduction. In addition, workers with an individual income of more than $145,000 (or $290,000 for a couple) will have to repay the COBRA subsidy on their 2009 income taxes.

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  1. Posted by: Wallach

    Message
    I was laid off on January 20, 2009.

    I was offered the Cobra under the ARRA. I requested to continue
    coverage under this new law with the subsidy. I requested on April 26, 2009\
    to start my Cobra coverage on May 1, 2009.

    Now the employer is trying to make me pay for the months of March 2009
    and April 2009. Since I did not use the plan in those 2 months,
    why should I have to pay for coverage of those months. Plus this
    will shorten my 9 months of help under the AARA by 2 months.

    Can you help me understand this?

    Thank you,
    MWallach

  2. Posted by: Amelia

    Hi MWallach! Yes, we think we can help you understand this. COBRA permits many employees who were terminated to continue their group health insurance uninterrupted for up to 18 months. The ARRA offers a COBRA subsidy — and a premium reduction — to employees for up to 9 months. However, COBRA coverage is an all-or-nothing proposition. The employee can choose to continue coverage, or not to continue coverage — but the employee can’t pick and choose which months they will be covered.
    When you were employed, you had to accept group health insurance every month, or not at all. You did not have the option of retroactively saying “I didn’t have any healthcare expenses last January or March, so I don’t want to pay for my health insurance for those months.” The nature of health insurance is that you pay every month, whether you use it or not. The same is true of COBRA coverage, because it is merely the continuation of the health insurance you had while working. HTH, and thanks for reading the blogs!~ Amelia

  3. Posted by: Vonda

    I also got the first bill from BC/BS in late May. It was $486, greater than the maximum weekly benefit for North Carolina UI after taxes, and therefore greater than a month’s rent should be for a household on unemployment.

    Since a person cannot backdate needed health care,and since it is impossible to find a specialist who will see someone who has no insurance, the backdated surcharge is simply that.

    The justification you give applies when a person is actually able to use the benefits for which she is paying. MWallach and myself and millions of others who lost their health insurance with their jobs were not able to use the services the insurance provided during the time they did not have it.

    This is the crucial difference in your analogy to someone basing their premium payments on their use of health care. The correct analogy would be someone saying “I did not have health insurance during those months,therefore I don’t want to pay for it”. That is an entirely reasonable position.

  4. Posted by: Amelia

    Hi Vonda! We agree with the spirit of your comment, even though we have to disagree with some of the details.
    We agree that there are many flaws in COBRA coverage, and it is terribly expensive. However, we did not make up the COBRA rules (or the subsidy rules) so your anger is directed at the wrong person.
    As with other types of health insurance, a worker must pay for COBRA continously or do without. When you are working, you can’t say “I will pay for insurance in March, April, September and December– that’s when I will see a doctor.” It is the nature of insurance coverage that the employee has to opt for insurance for the entire year, in order to be covered for the last month. COBRA operates the same way. It is just an extension of health insurance coverage for unemployed workers. When an ex-employee decides to take COBRA, they do have health insurance coverage, even before the first premium is due. If they need to see a doctor, they simply show their existing insurance card.
    Most employees don’t realize how expensive health care coverage really is in this country, because the employer pays part of it. If you are paying $486 per month for COBRA coverage, that is because you and your employer combined were paying at least $476.47 per month for your insurance coverage when you were employed. If your monthly premium was $200, that means your employer was paying $276.47 (or more) per month.
    We agree that health care in this country is prohibitively expensive for many people. That is why Congress and the President are currrently debating a more affordable plan that would fix it. Perhaps you should contact them with your concerns — they are the ones who can do something about it. HTH, and thanks for reading the blogs!~ Amelia

  5. Posted by: Will

    I just came across the same situation posted by Wallach and Vonda, and I don’t think you understand what they are asking, Amelia.

    I was laid off In September 2008 and I didn’t find elect COBRA because it was too expensive. I found out about the ARRA changes to COBRA in late April after reading something online. My employer never contacted me and this was after their supposed deadline to notify us had passed (working on a way to file a complaint against them, but that is another matter). So, we contacted them and filed the paperwork, and after they delayed processing it until early May, I finally got health benefits with COBRA and stimulus reductions in mid May. We sent them one or two payments so far, but then we get this letter, demanding we pay for March and April (and I was already angry they didn’t prorate our payment for May, since it was their delay that kept me from going to the doctor). Now we are told our benefits are RETROACTIVE back to March 1st. Well, how am I supposed to go back in time and make use of these benefits? They want money for months when I DID NOT have insurance, and now I have to come up with 3 months payments or I lose benefits (March + April + next month’s payment). If they had notified me as they were required to by law, I would have signed up earlier and been using those benefits. Are you telling me there is no recourse but to find a way to pay for those months?

  6. Posted by: Amelia

    Hi Will! You’re right, I didn’t understand. My understanding was that Vonda and Wallach had signed up for COBRA in March. When they received the premium notice in May, they didn’t want to pay for March and April because they hadn’t been to the doctor during those months.
    But if you didn’t sign up for COBRA until May, and didn’t have coverage until May, then you should not have to pay for March and April. Go to this link for the US Department of Labor COBRA Subsidy task force:http://www.dol.gov/ebsa/cobra.html At the bottom of the page is a toll-free number to call with COBRA questions and problems. They will help you file a complaint. They also have an appeals process. They are very fair and usually respond quickly.
    Part of the problem seems to stem from the fact that the employer or insurance company may not have the employee’s current address. So in some cases the COBRA notices were sent, but the employee did not receive them.
    Unfortuntately, the other problem is that there was a limited “window” of time when employees who had previously declined COBRA coverage could sign up. The subsidy doesn’t give you the option of signing up any time between Feb. 2009 and Dec. 2009. It gave employees 45 days after March 19,2009 (Or whenever they received COBRA notification) to sign up. But if the date on your COBRA papers indicates that coverage began in May, you should not have to pay the premiums for March and April. HTH, and thanks for reading the blogs!~Amelia

  7. Posted by: Ridiculous

    My husband was injured on the job last year and is not able to return to work per doctors and state worker’s compensation. He was on FMLA until December 2008 and was terminated June 2009. We are eligible for COBRA since FMLA ended in December and applied for ARRA premium reductions. DOL denied premium reductions stating that his termination was “involuntary”. What in the world are they saying? It makes no sense. First time they denied for a “non qualifying event” saying that the employer called it a “reduction in hours” when his FMLA ended. But he has not been able to work since June of ‘08 and has had NO hours since that time. So we requested a review and they came back with this one; “involuntary termination”. The letter said that if we disagree we can get counsel to assist us. Who can afford an attorney with now mortgage and $972+/month COBRA premiums plus uncovered medical travel? The employer is apparently giving misinformation to DOL and DOL is believing them. Is there any recourse after a second denial? What is your suggestion? Thank you for any help!

  8. Posted by: Amelia

    Hi Ridiclous! Sorry, but if your second appeal to the US DOL has been denied, we can’t offer a lot of hope. We are assuming you have already contacted the toll-free number at 1.866.444.3272. You could always call the DOL at that number and ask them to explain. We would have expected that your COBRA premium reduction would have been denied — but not because of the type of termination, because of the timing of the termination. It appears that your husband has not been able to work since June 2008. COBRA premium reductions apply only to people who were involuntarily terminated between Sept. 2008 and Dec. 2009. But regardless, it is probably not going to be overturned now. You can certainly take it up with the Workers Comp Ombudsman in your state, if there is one. HTH, and thanks for reading the blogs.~ Amelia

  9. Posted by: Jeffrey

    Regarding eligibility, I fall into the eligible group of laid off workers. However, my wife’s employer (small firm, ~20 full-time employees) makes available insurance to spouses, albeit at a quite elevated rate (nearly 2x the individual COBRA premiums available thru my former employer). Obviously, I’ll be electing COBRA coverage and decline her employer’s insurance. Can I possibly claim the premium reduction?

  10. Posted by: Amelia

    Hi Jeffrey! You can always appeal the COBRA premium reduction when it is denied, but generally a person who qualifies for other coverage does not qualify for the premium reduction — regardless of the cost of the other coverage. The main purpose of the COBRA premium reduction is to provide health insurance coverage to people who would otherwise be without it — and that does not really apply in your case. HTH, and thanks for reading the blogs!~ Amelia

  11. Posted by: BK

    I have had some issues with my former employer being slow to file my COBRA paperwork or even to notify the health insurance company that I was laid off. Whenever I called or emailed about my status, I got the brush off. I even contacted my local EBSA branch to file a complaint, but was told that my former employer was not at fault for anything besides being slow (I still technically had my old health insurance). EBSA did contact them, and I immediately received all my paperwork.

    I applied for the COBRA premium reduction about five weeks ago. It is now time to pay this month’s premium, but I have not received word from my former employer about any change in my rate (I know I qualify 100%). When I called to ask about it (one unanswered email later), the HR person did not remember that I applied for it and said she would call me back. She has not gotten back to me and is on vacation for a week.

    The only reason I elected COBRA was for the premium reduction. It bothers me to pay the full premium when I do not know how much I owe, especially since money is tight. Should I just fork over the full amount so I am not late? Or should I refuse to pay until they answer me?

    Thank you for your help!

  12. Posted by: Amelia

    Hi BK! Unfortunately, if you refuse to pay the COBRA premium, the employer can drop your coverage. They do not have to reinstate it in the future, even if you were entitled to the COBRA subsidy and you pay future premiums. So in this situation, sadly, yes, you must pay the amount the company says you owe, meaning the full premium. Theoretically, the company can give you a credit in the future, if it turns out that you were entitled to the COBRA subsidy. But simply withholding the COBRA premium is a very bad idea. If the company continues to give you problems about this, contact a COBRA Subsidy benefits advisor at the number above. But until the company informs you otherwise, you must pay the full premium. HTH, and thanks for reading the blogs!~Amelia

  13. Posted by: Jeffrey

    One more question, Amelia. If I initiated COBRA coverage for myself and a dependent, does the law allow restrictions on removing said dependent from coverage at a later date at my will? Or does the removal have to be associated with a qualifying event? My COBRA administrator has indicated that no changes (additions or removals) of otherwise Qualified Beneficiaries can be made after my initial enrollment, requiring me to maintain COBRA coverage for myself and my dependent for the duration of my coverage. Thanks — this blog has been extremely helpful.

  14. Posted by: Amelia

    Hi Jeffrey! Thanks for the kind words –we are glad you’ve found the blogs helpful!!
    Yes, unless there is a qualifying event, no changes can be made to your COBRA after election. COBRA is very much like regular health insurance in this regard. Normally, if we do not put our dependents on our health insurance, we have to wait until the open enrollment period to add them. We can’t add a dependent one month and take them off the next month. There is no open enrollment period for COBRA. So unless there is a qualifying event (job loss, divorce, birth, etc.) dependents cannot be added to or taken off COBRA once the decision has been made. HTH, and thanks for reading the blogs!~ Amelia

  15. Posted by: Art

    I am wondering about the FMLA act and I am on workmans comp and my employer didnt tell me i was on fmla and now sent me the cobra paper work and want me to pay over 2 grand to get my insur back on they dropped july 31 not tellong me how much i need to pay a wk like i was when i was working so am i able to get cobra at the discount or do I pay full price since my emplyer didnt tell me anything untill this wk

  16. Posted by: Amelia

    Hi Art! We are confused, because COBRA does not apply when an employee is on FMLA.
    Normally an employee on workers’ comp is also on FMLA. However, the employer must inform the employee at the beginning of leave that it is being counted as FMLA. One of the provisions of FMLA is that the employee’s insurance must continue on the same basis as before. In other words, the employer must continue to pay any portion of the health insurance premium, that the employer paid while the employee was actively working. The employee is still responsible for making the same insurance payments that the employee would have made, while he or she was working. (However, medical expenses for your injury should be paid by workers’ comp, not your personal insurance.)
    COBRA usually applies only to an employee who has been terminated — either fired, laid off or has quit. COBRA might apply to an employee whose hours were drastically cut or eliminated, but not if that employee were on FMLA. HTH, and thanks for reading the blogs!~Amelia

  17. Posted by: Maureen

    My position was eliminated effective July 18, 2008 with severance through February 13, 2009. Since I did not qualify for COBRA until my severance ended on February 13, 2009, I do not understand why I am not eligible for the reduction in payments for COBRA.

  18. Posted by: Amelia

    Hi Maureen! Contact the toll-free number in the article above to talk to a benefits advisor. Unfortunately, the COBRA premium reduction law is pretty clear. It applies only to those who lost their jobs after September 1, 2008. You lost your job on July 18,2008. Even though some of your pay and benefits continued until February, that is not the same as being employed until February. But maybe you can convince the benefits advisor otherwise. HTH, and thanks for reading the blogs!~ Amelia

  19. Posted by: Kirk

    I am a mortgage loan officer specializing in FHA and VA manufactured home loans. My company lost the ability to do these types of loans and my ability to make commissions went away ( My pay was 100% commissions). Due to the inability to make income and after 30 days I finally decided I needed to leave this company or starve. Because I left the company has said I left voluntarily. I was with this company for over 5 years and would never have left if my income and chances of future income did not go away. Does this meet the standard set up in this ” An employee’s resignation in response to a material negative change in the employee’s employment relationship (such as a transfer to another state or reduction of hours to part-time status). ” for purposes of ARRA?

  20. Posted by: Amelia

    Hi Kirk! Probably not, but phone the toll-free number in the article and speak with a benefits advisor.
    You don’t say what the employer had you doing for the last 30 days of employment. If you were still offering FHA and VA loans, but the standards were changed to make it almost impossible, that probably wasn’t a material negative change in employment, under the ARRA definition. In some cases, even if you were reassigned, if you accepted that position and worked in it for 30 days, from a legal standpoint your resignation would not be considered due to the change in duties. (It would be considered due to the change in duties if you never worked at the new job even one day.) But call — maybe there is a loophole in the regs. HTH, and thanks for reading the blogs!~ Amelia

  21. Posted by: rick

    can you tell me if i qualify for premium reduction for cobra insurance? i was taken out of work in late july per doctors orders for hand injury related to work. i am collecting workers comp benefits and have elected to receive cobra benefits@ 400 dollars per month,but if i can pay at 35% that would be much more affordable.i am on temporary total disability,pending results of many tests.
    thanx,rick

  22. Posted by: Amelia

    Hi rick! Unfortunately, as far as we can determine you do not qualify for the COBRA subsidy. Only employees who are laid off due to lack of work, qualify. However, phone the toll-free number in the article to see if there is any way you can qualify. HTH, and thanks for reading the blogs!~ Amelia

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