As I write this, we are in the midst of the biggest recession of my lifetime. Job layoffs are occurring by the droves. Companies are closing. Millions of people are out of work. And, when losing your job, some tough decisions as to what to do about family health insurance have to be made. Fortunately, the federal government's new economic stimulus package that President Obama signed into law February 17, 2009 contains some much-needed help. In fact, if you qualify, the government will pay 65 percent of your Consolidated Omnibus Budget Reconciliation Act (COBRA) premium for up to 9 months.
Here is what the world looked like before the new law was passed. Assume that Dave and Mary are both in their mid-40s with three children. Dave is an engineer and Mary a homemaker. Dave was laid off in February and has decided to pass on his March 1 COBRA continuation option because they cannot afford the $1,200 per month premium. They looked into the cost of individual plans. They ended up deciding on a plan with a $15,000 per person, $45,000 per family deductible. The monthly cost is $440—all they can afford.
Then, President Obama's COBRA subsidy program was enacted. Starting March 1, Dave and Mary could get the COBRA plan at Dave's old job by paying only 35 percent of the $1,200 monthly cost—about $440 a month for up to 9 months! This is clearly a better option than risking up to $45,000.
How the New COBRA Subsidy Law Works
First, it applies to all involuntary job losses between September 1, 2008, and December 31, 2009. If you qualify and elect to continue your health and/or dental insurance under COBRA, Uncle Sam will pay 65 percent of the cost for you for up to 9 months. What happens after December 31, 2009, is anybody's guess. As of now, unless Congress extends it, the subsidy will end, and you will be responsible for 100 percent of the COBRA premium again. If that's not affordable, and if you're still unemployed with no job in sight, look into getting an individual policy about 2 months before your 9-month subsidy expires. (It takes about 2 months for an insurance company to underwrite an individual health policy application.)
Note: If any individual application is declined for health reasons, you are protected by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA guarantees your right to an individual health policy with immediate coverage for any preexisting medical condition, provided that you've had prior health coverage for at least 12 consecutive months with no interruption of more than 63 days.
Although the federal COBRA law requires only companies with 20 or more employees to offer COBRA benefits, many states have extended COBRA to apply to any company with as few as two employees. (Check with your state Insurance Department to see if it has extended COBRA benefits to smaller employers and have approved this new subsidy to be available to employees of the smaller employers.)
The subsidy ends the earlier of 9 months from the COBRA start date or the date you get coverage elsewhere (i.e., through a new job, through your spouse's job, or through Medicare). The subsidy you receive will not be taxable if your income is below $125,000 if you file individually, $250,000 if you file jointly.
Some Frequently Asked Questions
What follows are some frequently asked questions I have received from clients who have been recently laid off or out of work because their company closed its doors. There are several different scenarios, followed by the advice I offered for each.
"What if I was laid off after 9/1/08, and I declined my COBRA option at that time because of cost?"
Great news for you! You must be given a new 60-day time frame to reelect COBRA. So, for example, if you lost your job on October 1, 2008, you have the chance to change your mind starting March 1 and only owe 35 percent of the actual premium for the next 9 months. However, the clock would begin taking off your 18 months maximum COBRA option as of the date you were first eligible—October 1, 2008. If you've gone without coverage in the meantime of more than 63 days, that time frame without coverage won't count against you in determining your eligibility for preexisting condition coverage.
[Important: your employer must notify you of this right to the new 60-day eligibility as soon as possible. The 60-day period starts from the date that you receive the notice.]
"What if I'm on COBRA and have been paying premiums in full. Can I get reimbursed?"
Sorry, you can only get the subsidy for premiums starting March 1, 2009, and beyond. You can, however, still get the subsidy for the 9 months if you need it.
"I have been unemployed for quite a while, and my COBRA subsidy is ending. What should I
do about health insurance? I can continue my employer's coverage under COBRA, but the full cost for my family is $1,200 a month, and I simply can't afford that without a job!"
Here are two possibilities:
If you're married, check with your spouse's employer regarding the availability of group benefits for the family and the cost. Usually, because the employer pays part of the cost, your share of that cost is much less than your COBRA option. Be sure you apply within 30 days of your layoff so family members will be accepted automatically and won't have to qualify medically. This is especially important if any family member has any preexisting medical condition.
If you don't have the first option, look into the cost of a high deductible major medical individual plan. A $5 million major medical plan with a $5,000 deductible might cost you $500 a month for a family of 5 instead of $1,200 a month. Don't make a decision about COBRA right away. You have 60 days by law to make that decision. If you apply for an individual plan right away, you should hear whether or not you've been accepted within 60 days. If any of your family members is turned down for individual coverage, you can elect COBRA just for that person. If your state has a health insurance pool for uninsurable residents, you may be able to get less expensive insurance for them through the pool rather than continuing COBRA for them.
"We don't have any emergency fund. Even $500 a month is out of the question."
Check with your state consumer services office or insurance department regarding any special programs that they might have for someone in your situation. Also, check with Medicaid to see if you might qualify for their program. Finally, if you don't qualify for any subsidized program and elect to go without health insurance, at least formulate an emergency plan. Check with the neighborhood free clinics in your area so you know where they are located in an emergency. Check with your county hospital to find out if they will treat people without insurance. Find out now where you can go and receive treatment without insurance before a medical emergency arises. By planning ahead now, you can reduce the risk of major debt obligations later.
"I've been unemployed for quite a while. My 18-month COBRA continuation option at my previous job will be ending soon. Our family's medical conditions prevent us from qualifying for individual health insurance."
Welcome to the Health Insurance Portability and Accountability Act of 1996 (HIPAA)! HIPAA portability rules apply when your COBRA option ends (or if you had worked for a small employer and did not have a COBRA option). If you've had continuous health insurance in force for at least the last 12 months without an interruption exceeding 63 days, each member of your family who can't otherwise qualify for individual coverage is guaranteed under HIPAA the right to individually-owned coverage, in a plan chosen by your state, with no surcharge and no waiting period for preexisting conditions.
Those family members in good health are free to apply for and qualify for any individual plan of their choosing in the marketplace. Be sure to apply for individual coverage at least 60 days before your COBRA coverage runs out. That way, if any other family member is turned down for coverage, they also can get their health insurance through the state-sponsored HIPAA policy with no gap in coverage.
"My job and my health insurance ended because the company folded. There is no group insurance COBRA option. I am completely without insurance!"
If you have no COBRA option for whatever reason, your HIPAA rights begin immediately. Start by looking into what your spouse's employer offers, if anything. Remember that you have 30 days of open enrollment time from the date your prior coverage ended. If you have no spouse or if coverage is not available through your spouse's employer, check with your state and find out which individual plan you can qualify for immediately under the HIPAA rules and get you and your family covered there. Again, there can be no surcharge nor exclusion or waiting period for preexisting conditions as long as you had prior coverage for at least the last 12 months with no interruption of more than 63 days. Then, once you have this insurance in force on your family, you can begin the process of taking your time to look around for other individual products for which you or your family members might qualify, which could be a better value than the HIPAA product the state offers.
Beware of Temporary Medical Insurance Policies!
There are short-term policies in the marketplace that typically offer coverage for 60, 90, or 180 days. These policies are good for certain situations, but not for this one. First, they exclude all preexisting conditions since birth! Second, they cannot be renewed. You can reapply for another term, but any condition for which you been treated in the first term is now an excluded preexisting condition in the second term. There are several other limitations. Stay away from them, even for temporary situations, if you have any other alternative.
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