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Laid off? You may qualify for COBRA discount

Many unemployed who think COBRA insurance is too expensive don’t know a discount exists — and some have been given bogus information about whether they’re eligible.
/ Source: contributor

Alison Onianwa, who was laid off six months ago from her job as associate director for a logistics firm in Fort Lauderdale, Fla., was eligible for a new discount on expensive COBRA insurance but didn’t know it.

Marylynn Francis, who lost her job as a sales manager for a San Antonio, Texas, hotel in May, heard about the COBRA subsidy from her tax preparer. However, due to an error on the part of her employer, she was told she was couldn't get it — even though she qualified.

Officially known as the Consolidated Omnibus Budget Reconciliation Act, COBRA allows workers to remain on health insurance plans offered by their former employers by paying 100 percent of the cost, plus 2 percent in administrative fees. But for many, COBRA insurance is too expensive, costing thousands of dollars annually.  

A new law called the American Recovery and Reinvestment Act, signed by President Obama on Feb. 17, was supposed to change all that by offering a 65 percent discount.

“Some of you know people who lost their jobs, were worried about losing their health care, couldn't afford COBRA — we were able to reduce their costs by 65 percent so they could keep their health care while they looking for jobs,” Obama told a crowd last week in Wakarusa, Ind.

Unfortunately, many unemployed don’t even know the discount exists, and some have been given bogus information about whether they’re eligible.

The COBRA law, enacted in 1986, was already “fraught with misinterpretation and litigation,” said Karen McLeese, vice president of employee benefit regulatory affairs for CBIZ Benefits & Insurance Services. “The subsidy became effective immediately and gave HR departments no time to know it had passed, much less get up to speed on it.”

It’s unclear how many jobless have signed up for COBRA since the law went into effect.

One sign that more are taking advantage of the discount came from a major health insurer’s recent earnings report. Wellpoint Inc. reported its earnings in the second quarter dropped, hurt in part by a bigger-than-expected increase to 2.2 percent from 1.6 percent in people signing up for COBRA because of the discount.

The Internal Revenue Service expects to release initial numbers in September on how many have opted for COBRA since the subsidy was implemented, said IRS spokesman Eric Smith.

Many wrongly denied COBRA discount
Misinformation appears to be a problem. Of the nearly 6,500 jobless denied the COBRA subsidy by their former employers since May who appealed to the Department of Labor, 75 percent of cases were overturned, said Gloria Della, a spokeswoman for the agency.

Francis, the hotel sales manager from Texas, didn’t take her fight for the subsidy to the government. She fought it herself.

After she was denied the discount, she contacted her human resource department repeatedly and also called the third-party COBRA administrator. She eventually found out that her employer had misclassified her as leaving her job voluntarily instead of being laid off. (Workers can only get the subsidy if they were laid off.)

“I got my HR person on it and she was good and caring,” she said, adding that the error was fixed in a matter of days. “People probably get frustrated and give up. You need to be unemployed to have time to fight this.”

Onianwa of Fort Lauderdale was told by her company that she was eligible for COBRA insurance. But when she got the paperwork and figured out it would cost $360 a month, she realized she couldn’t afford it.

Then one day while watching a morning TV show, she heard a snippet on the Obama administration’s COBRA supplement plan describing those individuals who were eligible for the discount. “I said, ‘That’s me’ and called the health care provider company to see if I qualified,” she explained. “They said, ‘It looks like you do.’”

Who qualifies?
Getting answers to simple questions from the government about who qualifies for the subsidy and who doesn’t is not an easy process. Three different government agencies have jurisdiction over the COBRA supplement, including the Department of Labor, Department of Health and Human Services, and the IRS.

So where do the unemployed go if they have questions?

If you work for a private employer, you should contact the Labor Department, said Della. If you work for a nonprofit or a public entity, talk to Health and Human Services. Tax issues are handled by the IRS. Those who have questions about the COBRA subsidy can call the Labor Department first, Della said.

I received an e-mail from Holly Berkley, an internet marketing teacher at San Diego State University, who saw her work schedule reduced and her insurance benefits eliminated earlier this year.

Her HR department told her that she qualified for COBRA but not the subsidy. “Since I am technically still working a few hours a week, I have to pay 100 percent out of pocket. That means I'll have to pay more than $1,000 a month in health insurance for my family, which is more than I make teaching one class at SDSU anyway.”

When I asked the Labor Department whether a worker who lost their health coverage due to a reduction in work hours was eligible, Della directed me to the IRS code, which states: “If the reduction in hours is not a reduction to zero, the mere reduction in hours is not an involuntary termination. However, an employee's voluntary termination in response to an employer-imposed reduction in hours may be an involuntary termination if the reduction in hours is a material negative change in the employment relationship for the employee.”

I then contacted IRS spokesman Smith to find out exactly what this means as it pertains to Berkley’s situation, and he e-mailed back: “Based on the language in the law, as long as an employee keeps on working for the employer, even part time, he or she could not qualify for the COBRA subsidy.”

In a nutshell: If your hours are reduced and you lose your health coverage, you are entitled to COBRA insurance, but not the subsidy.

It's not too late
Here’s an overview on some basic criteria for the subsidy. (While COBRA insurance can be purchased for an 18-month period, the subsidy lasts only nine months, even though there’s talk among Democrats to extend it.)

  • You must have worked for an employer with 20 or more employees.
  • You must have been laid off between Sept. 1, 2008 and Dec. 31, 2009.
  • You are not eligible if you qualify for Medicare or a spouse’s health insurance plan.
  • You cannot receive the subsidy if you were terminated due to “gross misconduct.”
  • If you make more than $125,000 a year, or $250,000 as a married couple, the subsidy could increase your tax liability.

If you declined COBRA coverage or canceled the insurance because it was too costly and now want to apply because you think you can swing it with at the reduced rate, it may not be too late. Check with your human resource department and COBRA plan administrator to find out if you can still apply.

Next week’s Your Career column will look at the pros and cons of COBRA insurance and various health coverage options after you lose your job.