Understanding COBRA & Mini-COBRA Premium Assistance
The American Recovery and Reinvestment Act (the economic stimulus legislation) provides assistance with premiums to help involuntarily unemployed workers purchase their former employer’s COBRA or other continuation coverage. Originally, the act provided nine months of premium assistance for people laid off between September 1, 2008, and December 31, 2009. However, emergency legislation that President Obama signed into law on December 19, 2009, has extended this assistance: People can now get assistance paying for their COBRA premiums for up to 15 months if they were laid off between September 1, 2008, and February 28, 2010. Furthermore, in 2010, Congress may consider passing legislation that assists people who are laid off later than February as part of the anticipated jobs bill.
Currently, under the act and its extension, for up to 15 months, eligible unemployed workers will need to pay only 35 percent of their total COBRA premiums to continue the health coverage that they had through their jobs, and the federal government will reimburse employers or health plans for the remaining 65 percent of premiums. People are eligible for premium assistance if they were (or are) laid off between September 1, 2008, and February 28, 2010; have annual income during the tax year that does not exceed $145,000 for individuals and $290,000 for families; have a right to continued health coverage under COBRA or another law; and are not eligible for coverage under another group plan (such as through a spouse’s employer) or for Medicare. People with adjusted gross incomes between $125,000 and $145,000 (or between $250,000 and $290,000 for joint filers) will need to repay a portion of the assistance that they receive, while people with incomes below $125,000 for single filers and below $250,000 for joint filers are eligible for full assistance with no repayment.
What happens to people who didn’t pay the correct amount of COBRA premiums in December 2009 when they thought the assistance had ended?
Under the American Recovery and Reinvestment Act as it was originally passed, one group of people began receiving COBRA premium assistance in March, and that assistance ended on November 30, 2009. This group experienced a gap of several weeks before the assistance was extended, giving them six more months of help. The new law allows them to reinstate their COBRA benefits.
People who received COBRA premium assistance any time after October 31, 2009, should receive notice from their former employers or health plans by mid-February explaining that COBRA premium assistance has been extended. Those that lost their COBRA coverage for failure to pay their premiums can get that coverage back by paying any missed premiums: for each month missed, they must pay 35 percent of their total COBRA premium, and the federal government pays the other 65 percent (just as it did when they had the subsidy before). After people get notice from their former employer or health plan, they have 30 days to make this payment. Those that paid their full COBRA premiums in December because they thought the assistance had ended will get refunds or credits for any overpayments they made.
People who worked for small employers with fewer than 20 workers are also eligible for federal premium assistance for up to 15 months, as long as their state laws give them the right to continue their coverage for this period. Consult your state Department of Insurance for details.
Further information on COBRA assistance will be posted on the Department of Labor’s Web site at www.dol.gov/cobra.
What are COBRA and other continuation coverage laws?
COBRA is a federal law that allows people who leave jobs in businesses with 20 or more workers to continue receiving coverage through their former employer’s health plan, generally for up to 18 months (longer in some circumstances). The right to continue coverage applies to both workers and their dependents—a worker can elect to continue coverage for just the worker, the entire family, or just certain family members. Normally, people must pay the full cost of premiums (including both the employer and employee share) plus a small administrative fee of up to 2 percent of premiums. The Recovery Act provides up to nine months of premium assistance to people who are eligible for federal COBRA benefits, so that they will have to pay only 35 percent of premiums during that time.
People who lose state or federal government jobs are generally eligible to continue their coverage under other laws that are similar to COBRA. They are also be able to receive premium assistance.
Many states have laws known as “state continuation” or “mini-COBRA” laws. These laws help workers in businesses with fewer than 20 workers continue their health coverage if they lose their jobs. Such state continuation laws require small group health plans to provide continued coverage to unemployed workers as long as they pay both the employer and employee share of the premium. In some states, these laws mirror the federal COBRA law. In other states, they provide shorter periods of continued coverage or fewer benefits. In some states, workers who lose jobs in small businesses are not able to continue coverage under their former health plans at all. The Recovery Act also provides premium assistance to involuntarily unemployed workers who receive continued coverage under state programs, but only for those programs that are “comparable” to COBRA.
What should states do now?
States should make sure that they have a mechanism in place to enable workers who leave small firms to continue their health coverage so that these workers will be able to receive premium assistance. The law says that premium assistance will apply to “a State program that provides comparable continuation coverage [to federal COBRA].” (States are defined to include the District of Columbia and the territories.)
The following states do not currently require continuation coverage (mini-COBRA) for small businesses: Alabama, Alaska, Arizona, Delaware, Hawaii, Idaho, Indiana, Michigan, Montana, and Washington. (In Washington, insurers are required to offer employers the option of having a continuation coverage provision; however, continuation coverage is not mandated in group policies, so employers may offer plans that do not provide continuation coverage.) These states should enact laws that provide continuation coverage for at least 15 months for people leaving jobs in small businesses, which would enable these unemployed workers to qualify for federal subsidies. (We do not have information on programs in the territories.)
- The following states have state continuation (mini-COBRA) laws for small businesses, but the laws currently provide only a short period of continued coverage for laid-off workers: Arkansas, Nebraska, New Mexico, Oklahoma, South Carolina, Tennessee, and Vermont. These states should extend their required periods of continuation coverage to at least 15 months so that workers who lose jobs in small businesses will be able to get the full 15 months of premium subsidies provided by the federal government. Note: Some other states not listed here provide only nine months of continuation coverage. Now that premium assistance has been extended to 15 months, these states may want to extend their continuation coverage to last for as long as the federal premium assistance is available.
- States should make sure that people who worked for small firms receive notice about continuation coverage and premium assistance. States should also make sure that people who lost their assistance in December, when the subsidies had temporarily expired, receive notice that they can have their coverage reinstated. Furthermore, states should involve their employment offices and other appropriate agencies in outreach.
- States should also determine if they can build on this new assistance program to provide deeper help to low-income, unemployed workers. Even with the federal subsidy, some of these workers will not be able to afford their share of premiums. States may be able to assist with paying the remaining 35 percent of premiums for low-income, unemployed workers. State Coverage Initiatives provides good suggestions for states about how to build a deeper subsidy online at http://newsmanager.commpartners.com/ahstsd/issues/2009-02-27/2.html.
For more information, see States Act to Help People Laid Off from Small Firms: More Needs to Be Done.
Summary of Premium Assistance Provisions in the Recovery Act
Who’s eligible for assistance?
- People who were eligible for COBRA, state continuation benefits, or continuation of a federal or state employees’ health plan due to involuntary job loss between September 1, 2008, and February 28, 2010, and whose adjusted gross income does not exceed $125,000 for individuals and $250,000 for families are eligible for the full amount of premium assistance (65 percent of premiums).
- People with higher incomes—that is, people with adjusted gross incomes between $125,000 and $145,000 for individuals or between $250,000 and $290,000 for joint filers—can also get the subsidy, but they will need to repay a portion of the amount they receive.
- The subsidy can cover the worker and/or the worker’s spouse, partner, or dependents that had coverage under the health plan.
- Those who are eligible for other group health coverage (such as a spouse’s plan) or Medicare are not eligible for the premium reduction.
How will people with high incomes be kept from getting the premium assistance? Does the employer or health plan have to determine income eligibility?
No, the employer or health plan does not need to determine income eligibility. If a person with adjusted gross income above the limits listed above receives premium assistance, he or she will gradually repay it when filing his or her tax returns. Alternatively, the person can waive premium assistance so that he or she will not have to repay.
How do people get premium assistance?
People pay 35 percent of the cost of their premiums to their former employer’s health plan. The employer or health plan will be reimbursed for the remaining 65 percent by deducting this amount from the quarterly employment taxes it would otherwise pay the federal government. If it is owed more than it can deduct, the employer or health plan will receive a refund or credit from the federal government. The employer or health plan must attest that each person receiving premium assistance was involuntarily terminated from a job.
Can people use the assistance for a cheaper health plan than they had when they were working?
If their employer offers more than one health plan to employees, the employer may (but is not required to) allow people receiving the premium assistance to switch to the lower-cost plan. However, the lower-cost plan must be a full health plan—it cannot be one that covers only dental, vision, counseling services, referral services, or care only at the employer’s on-site medical facilities, nor can it be just a flexible spending account. People have 90 days to switch plans after getting notice of this option.
When did the assistance begin?
The law says that, for any period of coverage after the date of enactment (February 17, 2009), COBRA coverage for an eligible individual is considered paid if the “individual pays (or a person other than such individual’s employer pays on behalf of such individual) 35 percent of the amount of such premium….” People who lost their jobs between September 1, 2008 and February 16, 2009 should receive notice from their employers or health plans by April 18, 2009, about how to enroll in COBRA and premium assistance. Coverage and premium assistance are generally retroactive to March 1, 2009. Consumers who encounter problems or questions about enrolling in COBRA with premium assistance should contact the Department of Labor at 1-866-444-3272.
What if someone pays full premiums when they are entitled to the premium assistance?
For the first or second period that COBRA premiums are due after the law is enacted, if a person pays his or her full premiums, he or she is entitled to reimbursement of the excess amount from the employer or health plan, or to a credit toward future premiums. Similarly, people who paid their full premiums in December 2009, before the subsidy was extended, are entitled to reimbursement of the excess amount from the employer or health plan, or to a credit toward future premiums.
What about people who lost jobs after September 2008 but before the law was enacted?
People who lost their jobs after September 2008 but who did not elect COBRA before have a new 60-day period to elect COBRA after they get notice about the available help. In addition, people who lost their jobs and elected COBRA after September 2008 but who are no longer enrolled (presumably due to costs) also have a new election period. Their former employer or former group plan administrator has 60 days after the law is enacted to provide them with such notice. The Department of Labor has developed model notices for this purpose. It could take until April 18, 2009, for individuals who have already lost their jobs to receive notice of their eligibility for help, and then they had another 60 days to elect COBRA.
Will people be subject to a new pre-existing condition exclusion period if they did not elect COBRA until premium assistance was available?
No. The law does not count the period before assistance was available as part of a “break in coverage” that would subject a person to pre-existing condition exclusions.
How long does the assistance last?
The person will get help paying their premium until the earliest of the following:
- They are eligible for another group health plan through an employer and can be covered under that plan. (They MUST notify the first plan at this time. If they fail to notify their health plan when they are eligible for other coverage and no longer entitled to premium assistance, they may be required to pay back the excess premium assistance plus a 10 percent penalty.)
- They have received the subsidy for 15 months.
- Their COBRA period ends.
Does receiving premium assistance reduce other income-based government benefits?
No. Programs such as food stamps, energy assistance, etc. that provide support to people with low incomes are not allowed to count the COBRA premium assistance as income.
How do people find out about premium assistance?
Currently, when people leave jobs with 20 or more workers, their employer or health plan provides a notice about their COBRA rights. These notices were modified to include information about COBRA premium assistance. The Department of Labor, Department of Health and Human Services, and the Treasury Department have developed notices for other employers to give to their employees about premium assistance for state continuation plans and continuation plans for government workers. The notices explain how to apply and whom to contact.
People who lost their jobs after September 1, 2008, and who did not elect COBRA before the Recovery Act was passed should also have received notice from their former group health plan or health plan administrator informing them of the availability of COBRA premium assistance, whether or not they had already enrolled in COBRA.
In addition, the Departments of Labor, Health and Human Services, and Treasury will conduct outreach and post information on their Web sites.
If people are denied assistance, can they appeal?
If a person requests premium assistance for COBRA and is denied, he or she can ask the Department of Labor to review the decision. If a person requests premium assistance for state continuation benefits or continuation under a plan for government workers and is denied, he or she can ask the Department of Health and Human Services to review the decision. The appropriate agency, in consultation with the Department of the Treasury, will make a determination within 15 days.
What data are collected and shared with Congress about this program?
The agencies mentioned above that are charged with administering the program must provide an interim and a final report to Congress on the number of people receiving assistance and expenditures for the program. The final report must include average monthly and annual payments made for individuals receiving the COBRA subsidy.
Where can I get more information?
The Employee Benefits Services Administration (EBSA), within the Department of Labor, will post updates on its Web page as it promulgates guidance, regulations, and model notices: http://www.dol.gov/ebsa/COBRA.html.
The Internal Revenue Service (in the Department of Treasury) has posted additional information for employers online at http://www.irs.gov/newsroom/article/0,,id=204505,00.html.