COBRA Subsidy Goes Bye Bye


 

As part of the American Recovery and Reinvestment Act (ARRA) passed in 2009, the Federal Government granted a 65% subsidy for COBRA payments for workers who were laid off between September 1, 2008 and May 31, 2010. This subsidy ends today, September 1, 2011.

 

What does this mean for those on COBRA? The change will most affect those laid off toward the end of  the COBRA Subsidy period. People who fall into this category, will now be responsible for 100% of their COBRA costs as opposed to the 35% subsidize share they were paying.

 

The magnitude of these changes will vary depending on certain factors:

 

State of Health – If you and your family are healthy and qualify for individual coverage, this certainly would be a great option to explore. The Kaiser Foundation found that the average family in the United States could obtain family coverage for $410 per month on an individual basis versus $1137 per month to cover your family on a group basis. (Please note that these are national averages and not Illinois rates.)

 

What is consistent is the percentage difference. The individual coverage will be just a little over 1/3 of the cost of group coverage. The main reason for this is the difference in underwriting between individual and group coverage. Insurance companies are required to accept all active employees for group insurance regardless of their health conditions, while individual underwriting can accept or reject based on their particular merits. This allows individual insurers a relatively healthier group at least when they first enroll for coverage.

 

Employment Situation  –  Many people elected to opt out of coverage at their new employer because the amount that they would pay under COBRA with the subsidy was less than the amount that would be required to contribute to the new company’s insurance plan. Post subsidy, a trip to the HR Department will likely remedy the situation and possibly save the employee some money.

 

Unemployed With Health Issues  –  Needless to say, this is not a great situation but coverage is available in the state of Illinois through a program called CHIP (Comprehensive Health Insurance Plan). This plan is guaranteed issue and available for people who are not eligible to obtain coverage through the private market. The plan is higher priced than conventional market coverage, but it is subsidized, so the full impact of the actuarial risk is not reflected in the pricing.

 

The plethora of trickle down effects such as these that the Affordable Care Act will have is consistently on the front burner of political discussions. The provisions of the legislation are not scheduled to kick in until 2014, but the actual machinations of how it will work are still being developed.

 

If you find yourself in this situation, the best plan of attack is not to prejudge your situation. Speak with someone (preferably me) regarding your individual needs, conditions, and budget to explore which companies would best fit your personal situation.

 

Kurt Rusch  CLU, ChFC

, , ,