COBRA Stimulus Package

In response to the recession that hit the United States in late 2007, President Obama put into practice both an increase in the length of time people could receive unemployment benefits and a COBRA stimulus package. This package was part of the American Recovery and Reinvestment Act, which was signed on February 17, 2009.

COBRA insurance extends health care for the unemployed

COBRA is short for the Consolidated Omnibus Budget Reconciliation Act, which was already in place. This Act required employers to allow employees who leave the company to continue their health insurance plans.

Before the COBRA stimulus package, Americans were only allowed to keep their employer sponsored health insurance for 18 to 36 months after they left their jobs either voluntarily or due to a layoff or cutback in hours. They were responsible for the entire premium, so the employer did not have to pay anything. The advantage to the beneficiary was that he or she could enjoy a reduced rate by getting insured through a group policy as opposed to an individual one.

Since the stimulus package passed, the following changes were made to existing policy:

• The federal government will foot 65 percent of a covered person’s insurance bill for up to nine months.
• People who did not ask for COBRA when they left their jobs prior to the change must be given another chance to opt in.
• People who lost their jobs after September 1, 2008, but before the new COBRA rules were instated, can count the time between their termination date and the first day the new policy was enacted as not being a break in coverage. Thus, insurers cannot count any injuries or illnesses incurred during this time as pre-existing conditions.

The subsidy terminates when the beneficiary gets a new job or otherwise becomes eligible for a health care plan at a group rate. At this point, the person is required to notify the issuer of the COBRA stimulus plan whether he or she accepts the coverage offered or not.

Alternately, it will terminate when the person’s COBRA coverage would naturally end. Unlike the extension on unemployment benefits, there is no time extension on how long a person can get COBRA coverage.

As with many government policies, this one has a couple of exceptions:

• Employees who had their hours reduced, quit their jobs or were fired due to gross misconduct are not eligible for the subsidy. However, those with cut hours or who quit are still eligible for coverage according to the old rules.
• The full subsidy is only available to single taxpayers that make $125,000 or less and married taxpayers who make $250,000 or less jointly. It is then lowered in phases, reaching zero at $145,000 and $290,000 respectively.

A lot of employers are none too happy about this stimulus package. It requires them to pay the subsidized portion of the health insurance and then get it back in the form of a tax credit by filling out and submitting IRS Form 941. They also must notify all persons who are eligible of their option to opt in for coverage.

Although the Act did not go into effect until March 1, 2009, it was made retroactive to September 1, 2008. Anyone who lost his or her job, besides those subject to the exceptions stated above, became eligible. However, subsidies did not start until March 1, 2009, and people could not collect reimbursements for monies spent before that date.

The stimulus package is not indefinite, with an end date of December 31, 2009. People who lose their jobs after that date are not eligible for subsidized benefits.

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