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.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

Ella Nelson
Ella Nelson

Seems Cobra is now expensive? What had happened?

ann schult
ann schult

I pay for BC billed to me by my former employer, a Wall Street Law firm; same premium as an active employee. Unfortunately Medicare is primary and BC seconday so it works out to a Medigap policy in most instances ann


John, I don't have any of the specifics and I just posted the summary information that was provided to me. But if you need help to see if you qualify, your first contact should be directly with the benefits advisors at the Department of Labor. COBRA questions can be directed to: 1.866.444.3272.

The DOL site also states: "Individuals who request treatment as an assistance eligible individual and are denied such treatment by their group health plan may have the right to appeal to the Department. The Department is currently developing a process and an official application form that will be required to be completed for appeals."

So, I don't think you're alone in having trouble getting this issue resolved, but I'm not sure what the best course of action would be. Hopefully someone at the DOL 800 number can assist further, and if you still have trouble, the appeal process may be an option once it has been established.

John WIlliams
John WIlliams

Everyone I contact concerning my eliegibility for the 65% reduction in Cobra provides me with a non-personal generic message. I need you to review my situation and need your help. I believe that I am part of the group that this bill was designed to help, but I am not being included. There must be an appeal process or someway that you can look at exceptions for specific individuals. I am being left out and ignored. I have never complained about policies and the decisions made by our government, but please look at my situation.

As I stated earlier, I involuntarily left my job at Monarch Healthcare in July 2008. After my job search, I found another position at Neudesic, however due to canceled contracts, I was laid off again in October 2009. I was not at Neudesic long enough for medical coverage, so I continued COBRA coverage from Monarch Healthcare. To qualify for the Cobra reduction, I read that you must meet the following '3' requirements:

1. Must be eligible for COBRA continuation coverage at any time during the period beginning September 1, 2008 and ending December 31, 2009.
• My continuation coverage was from Monarch Healthcare, but I was laid off again from Neudesic during this period (October 2009), so I have met this requirement.
2. Elects COBRA coverage when first offered or during the additional election period.
• I signed up immediately for Cobra coverage when first offered it by Monarch.

3. Has a qualifying event which is employee’s involuntary termination during the period beginning September 1, 2008 and ending December 31, 2009.
• I was involuntarily laid off from Neudesic LLC in October 2008.

My concern is that I have Cobra from Monarch Healthcare, but NOT from Neudesic LLC. I will NOT be on the list that Monarch Healthcare submits for individuals that qualify for this reduction. I will also NOT be on Neudesic’s list because I was NOT there long enough.

After all the fanfare about this act helping unemployed workers and to be disqualified because Cobra coverage started in July and not October. Even though I was laid off in October is terrible. I know that neither Monarch or Neudesic will be submitting my name.

At this point , my financial condition is getting worse and worse. More and more companies are canceling positions and continuing to layoff personnel. I thought this act was written to help families like mine. I really need to receive a reduction in Cobra. Healthcare is very expensive and my wife is recovering from breast cancer and I know I will have to pay the price for Cobra no matter how high it is.

Your help on this would be appreciated.

Thank you.

John R. Williams
5 Amato
Mission Viejo, CA

Evan Powell
Evan Powell

Wow, I'm on COBRA now from a job change. I paid $412 last month. I'm going to have to read about this some more because I think you just saved me a ton of money! Thanks!


The cost you see as an employee is 50% to 100% less, not 2-5%. I sell ins. People not realizing what health care cost is the exact reason why costare out of control. Many people will find out soon with job loses.


More expensive, I think employers are allowed a 2-5% 'up charge' over what you may have paid for insurance as an employee. With the 65% reduction, this will be a deal if you qualify. At least for nine months anyway!

Eves Bank
Eves Bank

It may be a bit more expensive, but it is still better to be insured should anything happen.


Although this is welcomed news, I've heard that Cobra is very expensive.