Q&A: COBRA confusion? Your questions answered.

March 6, 2009

A lot of you have probably heard about recent changes to the Consolidated Omnibus Budget Reconciliation Act, or COBRA. COBRA gives workers and their families who lose health benefits because of job loss the right to receive continued care. Under new legislation, certain individuals eligible for COBRA coverage may receive a subsidy for 65 percent of the premium (these individuals are required only to pay 35 percent).

But how does it all work?

Below, Fred Garfield, Senior Vice President of benefit solutions at The Horton Insurance Group in Orland Park, Ill., answers some important questions about the new legislation. 1. What specific steps must I take to claim this premium reduction? The employer is required to send a written notice and enrollment form to the employee no later than April 18th, and the employee has 60 days to notify the employer of their desire to accept. Acceptance would be retroactive to March 1, can only be taken for the employee and those dependents covered at the time coverage was initially lost, and full payment of the premium, less the 65% federal subsidy amount, retroactive to March 1 must accompany the written reinstatement request. 2. If I did not enroll in COBRA when I was laid off, can I definitely enroll now and receive the premium reduction? Yes, however only for yourself and those family members you covered at the time you were laid off. You will receive the reduced premium cost for up to nine months. 3. If I am an employer, how does the new legislation affect me--how will I be reimbursed? You can take your reimbursement as a reduction of the payroll taxes (FICA and Medicare) you report on your quarterly 941 report. Instructions on how to do this, including recordkeeping, was provided on the IRS website and was described in one of our prior handout attachments. 4. Is the government likely to extend this legislation past Dec. 31 2009? If the economy turns around, it would be unlikely, but this is hard to predict. We know at this time it is not extended to any individual COBRA beneficiary beyond the nine-month subsidy period. The government did this in recognition that without insurance people would likely get no preventative care, and more serious illnesses would be coming through the emergency room at much higher, uncontrolled cost. 5. What happens if I reach the end of my maximum COBRA coverage period?

At the end of COBRA, the options include taking individual coverage (subject to medical underwriting), converting the COBRA to an individual policy (very limited coverage and extremely expensive), signing up for the State I-CHIP high risk program (also limited coverage and high cost), or if financially qualified getting financial assistance to acquire or purchase coverage through the Illinois State Medicaid program. Some short-term or "bridge" policies can provide current coverage (no pre-existing conditions) and they do not qualify as "HIPAA Compliant Credible Coverage" to offset pre-existing conditions on a new employer sponsored group plan.