What the Cobra Subsidy Extension Means to You

Those who have been laid off in this troubled economic climate clearly face many challenges, such as paying their bills and finding new employment. If you are out of work, maintaining your health insurance may now be a little easier because of a new law signed late last year. The New Jersey Society of Certified Public Accountants (NJSCPA) explains what you need to know:

Cobra Considerations
Under the Consolidated Omnibus Budget Reconciliation Act, known as COBRA, it’s possible for former employees to continue receiving health care coverage under their old employer’s plan. Former employees must pay for their continuing coverage, which can last up to 18 months. They must pay the entire premium, which makes COBRA out of reach for most unemployed individuals.

Responding to the Recession
In the midst of tough economic times, the government last year offered a special subsidy to those who were out of work and struggling to keep up COBRA payments. Those who are eligible were subsidized for 65 percent of their COBRA premiums for up to nine months, starting in March 2009, allowing them to pay as little as 35 percent of their insurance bill for continuing group health insurance coverage. Although COBRA coverage is available to those who choose to leave a job, this special subsidy is intended only for those who face involuntary termination, such as a layoff. The subsidy was scheduled to expire on December 31, 2009, but with unemployment still high, Congress decided to extend and expand the benefit.

A Subsidy Extension
To qualify under the new rules, you must have been fired or laid off between September 1, 2008, and February 28, 2010, rather than by December 31, 2009, meaning that more people who lost their jobs in recent months are eligible. In addition, the period of time you can receive the subsidy has been lengthened, from nine months to as long as 15 months.

What It Means to You
If you qualify, the premium reduction applies to coverage beginning on or after February 17, 2009. So, let’s say you lost your job in June 2009 and your employer-paid health coverage ended at the same time. Assuming you are otherwise eligible, you can elect to continue being covered on your employer’s plan for as long as 18 months. For 15 of those months, you pay only 35 percent of the health care premiums, and a premium reduction (65 percent of the full premium) is reimbursable to the employer, insurer or health plan as a credit against certain employment taxes.

Eligibility Limits
There are some rules governing who can receive the subsidy. You no longer qualify if you become eligible for health care coverage under another group plan — by taking another job that offers health care benefits, for example — or for Medicare. In addition, you are only eligible for the full benefit if your adjusted gross income is below $125,000 during the tax year in which you receive the subsidy (or $250,000 for married couples filing jointly). The subsidy amount declines on a sliding scale for those with adjusted gross incomes between $125,000 and $145,000 (between $250,000 and $290,000 for joint filers). Those with adjusted gross incomes above those figures must repay the premium subsidy if they receive it.