COBRA Changes – Premium Reduction Under the American Recovery and Reinvestment Act of 2009

New COBRA Changes Reduce Premiums by 65%

The latest stimulus package, also referred to as the American Recovery and Reinvestment Act of 2009 has included a provision that will reduce the COBRA health coverage premiums by 65% for those who qualify. With job losses mounting and many individuals relying on health insurance through their employer, this is welcome relief.

If you aren’t familiar with the program, COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. Created in 1986, COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates.  This coverage, however, is only available when coverage is lost due to certain specific events.  Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves.  It is ordinarily less expensive, though, than individual health coverage.

In other words, if you were actively participating in your employer’s group health plan and were terminated, you would generally qualify for COBRA coverage. Once approved, you would then pay the entire premium to maintain the same health coverage that you had under your employer for up to 18 months. Unfortunately, if you’ve just lost your job and now have to pay even more for health insurance than you did before, it can become a difficult financial situation, thus the new premium reduction.

New COBRA Premium Reduction

The American Recovery and Reinvestment Act of 2009 provides for a 65% reduction in COBRA premiums for certain assistance eligible individuals for up to 9 months. An assistance eligible individual is a COBRA qualified beneficiary who meets all of the following requirements:

• Is eligible for COBRA continuation coverage at any time during the period beginning September 1, 2008 and ending December 31, 2009;
• Elects COBRA coverage (when first offered or during the additional election period), and
• Has a qualifying event for COBRA coverage that is the employee’s involuntary termination during the period beginning September 1, 2008 and ending December 31, 2009.

The bad news is that if you’re married and your spouse is eligible to enroll in a health plan through their employer, you would not qualify for the premium reduction. This is also the case if you are eligible for Medicare. The premium reduction applies to periods of coverage beginning on or after February 17, 2009.

There is also an income limitation in effect and if your MAGI for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for joint filers), then the amount of the premium reduction during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), the amount of the premium reduction that must be repaid is reduced proportionately.

For more information, be sure to check out the COBRA page at the U.S. Department of Labor.

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