Late last month, Congress voted to extend the nine-month, 65 percent COBRA premium subsidy to 15 months for covered employees who have experienced involuntary termination of their employment. In addition, the subsidy now applies to workers who became unemployed from September 1, 2008 to February 28, 2010, a two-month extension from December 31, 2009.
The COBRA subsidy
, which was initially a provision of the American Recovery and Reinvestment Act of 2009 (ARRA), was extended in the Department of Defense Appropriations bill, which was signed by President Obama on December 21. Group health insurance through COBRA is normally available to former employees, who pay the full cost of the premium, for up to 18 months.
The premium reduction applies to periods of health coverage that began on or after February 17, 2009. Eligible workers must decide to continue their health coverage under COBRA provisions within 60 days of termination of their employment.
Employers must pay the 65 percent cost of the premium (for eligible former employees) to the insurer up front but they are entitled to a credit for the COBRA cost on their payroll tax return.
The premium reduction for an individual ends upon eligibility for other group coverage (or Medicare), after 15 months of the reduction, or when the maximum period of COBRA coverage ends, whichever occurs first.
The full subsidy is only available for individuals with a modified adjusted gross income of up to $125,000 ($250,000 for joint filers) or less for the taxable year in which the subsidy is received. A reduced subsidy is available if the individual's modified adjusted gross income is between $125,000 and $145,000 ($250,000 and $290,000 for joint filers).
Terminated employees whose nine months of subsidy ran out but who chose to pay the full premium to continue coverage can receive a credit or reimbursement for the extra six months, according to the U.S. Department of Labor.
The Department of Defense bill requires employers to give current and future COBRA beneficiaries notice of the extensions.
COBRA generally does not apply to plans sponsored by employers with fewer than 20 employees. Many States have similar requirements for insurance companies that provide coverage to small employers. The premium reduction is available for insurers covered by these State laws.
"The COBRA premium subsidy has been a great success from the perspective of increasing COBRA use and providing a safety net for out-of-work individuals and families," says Robin Thomas writing for Compensation Today
. Normally, only about 10 percent to 20 percent of eligible people elect COBRA coverage, Thomas says, primarily because of the expense of the premiums. But according to a recent survey by Hewitt Associates
, elections increased to 38 percent after the subsidy became available. The Hewitt survey estimates that the average employee would pay $8,800 a year for COBRA coverage, but the cost is reduced about $3,000 with the subsidy..