Helping Laid-Off Workers Pay for Health Insurance

By Michelle Singletary
Thursday, March 5, 2009

There's one Web site you need to check often if you intend to benefit from the many consumer provisions in the stimulus plan.

That Web site is It's essential because several key provisions in the stimulus package aimed at individuals and families are going to be interpreted and implemented by the Internal Revenue Service.

For example, the recovery law includes changes to the health-benefit provisions of the Consolidated Omnibus Budget Reconciliation Act, which is commonly referred to as COBRA. The new law includes a temporary COBRA premium reduction.

If you have questions about the COBRA provisions in the new law, go to the IRS site, and in the search field on the home page, type American Recovery and Reinvestment Act of 2009. This will take you to a page with highlights of the tax-related provisions in the new law.

Under COBRA, employers are required by law to offer the option of continuing your health insurance for up to 18 months. Coverage can be extended up to 36 months under some circumstances, such as a divorce, disability or the death of the policyholder.

The problem for many people is that they have to pay the full amount for the COBRA coverage plus an administrative charge. Sadly, many people getting laid off who want to keep their health insurance would face paying a substantial monthly amount to keep it. Family coverage can cost on average about $1,000 a month, according to Families USA, a national nonprofit. The average monthly COBRA premium for individual coverage is $388.

Nationally, to maintain single coverage, the average unemployed worker would need to spend 30 percent of his or her unemployment insurance check on COBRA premiums, a recent report by Families USA found. On average, unemployed workers would need to spend nearly 84 percent of their unemployment income to pay for premiums for family coverage.

The new law takes into account that people were struggling to pay for COBRA, so it allows eligible terminated employees enrolled in their employer's health plan to get a subsidy to help fund the cost of the health insurance. This has been set at 35 percent of your COBRA payment, for up to nine months. Employers will pay the remaining 65 percent and recoup that money by applying for a credit on their quarterly federal employment tax return. You may also be eligible for the subsidy for group health-insurance coverage provided under state laws similar to COBRA.

To qualify for the reduced COBRA payment, you must be involuntarily separated from your job between Sept. 1, 2008, and Dec. 31, 2009. Those who are eligible for other group health coverage (such as a spouse's plan) or Medicare are not eligible for the premium reduction.

The subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.

There's another catch to this payment break. The premium reduction applies to coverage beginning on or after Feb. 17, when the law was enacted. You cannot get a refund for premium payments paid prior to the law's enactment.

If your company closed or went bankrupt and there is no longer a group health plan, there is no COBRA subsidy available.

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