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COBRA Benefits Under New Recovery Plan

In Denver, Colorado President Barrack Obama signed the American Recovery and Reinvestment Act into law people have been clamoring for details as to how this new program will work.

The government will pay former employers of eligible employees 65% of the total cost of the premium for the first 9 months. Eligible employees include those covered by employer sponsored group insurance plans for both COBRA and under Colorado’s State Continuation Benefits.

So that means that the beneficiary (ex-employee) is responsible for 35% of the premium for up to 9 months and 100% after that. However, please note that if an beneficiary develops a pre-existing condition during the 9 month period and has not found new employment then it may be very difficult for them to medically quality to get onto a lower cost individual health insurance plan.

The 35% subsidy will expire at the earlier of 9 months, the date the beneficiary is eligible for group coverage or Medicare or the end of the maximum required period of continuation under COBRA. The beneficiary most advise their former employer in writing if they become eligible for coverage under a group health plan or Medicare. The government will impose penalties of up to 110% of the subsidy amount for failing to advise their former employer of eligibility for a group health plan or Medicare.

Requirements and Timing: To be eligible for the subsidy the beneficiary must have been involuntarily terminated from their employment. They also must have become eligible for COBRA between September 1, 2008 through December 31, 2009. People that did not elect COBRA can elect it retroactive back to the date that they would have first elected COBRA. If already covered by COBRA during this period the former employers are responsible for either refunding or crediting the subsidy amount against future insurance premiums payments.

If the your modified adjusted gross income is more than $125,000 a year or $250,000 a year, if filing jointly then you may not be eligible for the full subsidy. If your modified adjusted gross income is more than $155,000 a year or $290,000 a year, if filing jointly then you may not be eligible for any subsidy. The subsidy is not considered income as long as the beneficiary meets the income tests.

The beneficiary’s former employer will collect the 35% premium payment from the beneficiary and the 65% from the government.

{ 4 comments… add one }
  • Cheryl Nelson December 16, 2009, 4:26 pm

    I was laid-off on June 1,2009 and at that time started cobra with Blue
    Cross, I believe that the subsidy was for 9 months and on January 1, I should have two more months. Is this correct in Colorado? Should I contact the Insurance company, that has increased my monthly bill to the full price, or should I kcontact my former employer to handle the mistake? Thank you for any help, Cheryl

    • Mark December 16, 2009, 5:18 pm

      Hi Cheryl,
      The Federal COBRA subsidy should last for up to 9 months, but what may have happened is your premium may have increased if the group’s policy renewed on January 1st. I suggest calling your old employer to ask if that is why the rate went up.
      Best regards,
      Mark Erickson

  • Jennifer Mullikin July 2, 2010, 10:40 am

    I was let go of my job last October (2009) because I had to take too much
    time off to take care of my 85 year old mother. I did elect to for cobra ins.
    I have been making my checks out to my old employer and taking or mailing
    them to the ins. co. I have recieved paperwork for a reduction in premium, but
    was told that my previous employer was the primary and that I was not eligible.
    Now after 9 months, they have canceled my ins. without any notice, and they say
    that they are “lookin into it”. I am not sure if what is going on? Any advice?
    Jennifer Mullikin

    • Mark July 2, 2010, 12:07 pm

      That sounds pretty unusual, but with COBRA you do have to be VERY careful to make your premium payments on time to the former employer, as they are not obligated to give you any grace period. I would call the employer and ask why the coverage was cancelled, which it sounds like you’ve already done.

      I do not believe you would be eligible for the COBRA subsidy as that is for people who had an involuntary termination of employment. i.e. being laid off or fired.

      We would be happy to do a quote for you for a lower cost individual health insurance plan. If you would like to look into this option please click here.

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