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Paying for COBRA, Waiting for Discount

Apr 07, 2009

Schmitt

Rick Schmitt and his family are waiting for a promised health insurance subsidy.  (Family Photo)

This story is a collaboration between Kaiser Health News and The Washington Post.

Laid off last fall and left to find $1,400 a month for continued family health coverage, I felt as if I'd struck pay dirt when I learned in February that Congress had decided to spend billions helping millions of Americans like me retain our insurance.

The promise of a 65 percent subsidy on the premium looked like my own piece of bailout heaven. But nearly two months later, we're still waiting for our lifeline.

Some of us have continued ponying up large premiums on the promise that we will get refunds down the road. We're now hearing that, in some cases, the discounts may not fully kick in until this summer, and even then they may not be steep enough to make insurance affordable for many of the jobless.

Considering the way the government poured billions into the banks and insurers such as AIG that got us into this mess, the handling of the health-care subsidies smacks of a double standard for us ordinary Joes.

What Subsidy?

The stimulus package President Obama signed into law in February includes subsidies allowing laid-off workers to retain employer-provided group health insurance coverage at a discount.

How much?
Eligible individuals pay only 35 percent of the normal premiums. The remaining 65 percent is paid by the employer, which is reimbursed by the government through a payroll tax credit.

How long does it last?
Nine months.

Who qualifies?
Employees who are involuntarily terminated from Sept. 1, 2008, through Dec. 31, 2009, and who are eligible for continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Individuals whose annual adjusted gross income exceeds $145,000 ($290,000 for joint filers) are not eligible.

What kind of coverage?
Employers must provide the same benefits as in your old group plan, although they can offer other plans as well.

How do I apply?
Your employer or its representative is required to give you notice that you may be eligible. You also have to attest in writing that you meet certain criteria. You will have 60 days after receiving the notice to make a decision whether to participate.

What if I have other insurance?
If you are eligible for other group health coverage (e.g., through a new employer's plan, a spouse's plan or through Medicare), you are not eligible for the premium reduction.

When do the subsidies go into effect?
Premium reductions begin with bills due on or after Feb. 17.

What if I was laid off after Sept. 1 but declined or later dropped COBRA coverage?
The stimulus law gives you a second chance to elect coverage at the lower rates. You should be receiving a notice from your former employer later this month about participating. You have to make a decision within 60 days after that.

I already elected COBRA coverage, and I am paying 100 percent of the premiums. Will I get a refund?
The law requires your employer to give you a rebate or credit so that you pay no more than 35 percent of the cost starting with premiums due after the law was enacted. The law gives employers 60 days from the time you make these payments to make reimbursements. Payments made before Feb. 17 are not eligible.

How can I get more information?
The Labor Department and the Internal Revenue Service have special Web pages with additional details.

The biggest beneficiaries so far seem to be health-care lawyers and consultants who are busy selling advice on how the whole thing is supposed to work. It took a month for the government to come up with guidance on implementing the subsidies. Employers and the firms they hire to manage benefits now face the time-consuming job of identifying people who might be eligible.

With health-care reform high on the agenda of the Obama Administration, the situation offers a glimpse of the difficulties in pushing through any changes in the nation's health-care system. Given the thousands of different plans, experts say delays are inevitable under even the best of circumstances.

"There are lots and lots of pieces that could break down," said Karen Pollitz, director of Georgetown University's Health Policy Institute.

"This is not idiot-proof."

The subsidies, aimed at helping people keep their employer-provided group health coverage, look to be a good deal. The government is picking up about two-thirds of the cost. The subsidies are tax-free and last for nine months.

Employees have long had the right to continue their group health coverage under a law commonly known as COBRA. But the cost - 102 percent of the full price of the policy - has been beyond the reach of most people.

After I got laid off, I learned I would have to pay $1,403.90 a month to keep my old coverage, roughly the equivalent of what I receive in unemployment benefits from the District.

As much of a budget-buster as that was, our family had few options. My wife, a preschool teacher at our church, does not have health insurance among her job benefits. Because of some health issues - one member of the family has a history of depression, another has residual injuries from a head-on auto accident - the cost of obtaining insurance elsewhere would be prohibitive, experts tell me.

Which is why the stimulus package made me feel like I had won the lottery. As luck would have it, my Nov. 14 layoff date put me squarely within the period Congress set for "Assistance Eligible Individuals."

Last month, I cut a check for the full amount of COBRA premiums due for part of February and all of March. (My old company paid the cost through mid-February under a severance agreement.)

Knowing a bit about the law, I expected soon to be receiving refunds for my overpayments, followed in later months by bills that reflected the discounts Congress intended. Instead, what I got was a notice from the Minneapolis company my employer has hired to administer the program, indicating that something was up: It mentioned "New COBRA information" and "ARRA 2009" (the acronym for the stimulus law) and said more information would be headed my way soon. It also said I had to fork over another $1,403.90 premium for April or my coverage could be canceled.

I reached out to the Labor Department, subscribing to e-mailed updates about the program. I have learned about bilingual fact sheets, checked out an array of informational posters and flyers and seen a statement from Labor Secretary Hilda Solis. But some basic facts have been hard to come by.

Reading the text of the stimulus law, I discovered that employers have 60 days to cough up refunds or credits to people who paid more than 35 percent of their premiums after the law was enacted.

I also learned, by listening to a two-hour "compliance briefing," now posted on the Labor Department's Web site, that the government believes that people like me who had already elected COBRA were legally entitled to the 35 percent rate without further delay. An official suggested people in my position approach our employers.

I asked about this in an e-mail to the Minneapolis firm.

"We are currently working with the Department of Labor and our affiliates," a customer service representative wrote back. "If you qualify [for the subsidy] you will be re-notified and will have the opportunity to elect COBRA under the new subsidy. Please wait for official correspondence."

I'm hoping to get that official correspondence sooner rather than later.

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