COBRA and health care: Facts and commentary

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With health care being the center of media attention these past couple months and with President Obama presenting his much anticipated health care reform speech this evening, I thought it was a good idea to go over the COBRA package that is available for the unemployed and is part of this year’s stimulus package.

AllPinkSlips has a link to COBRA Continuation Coverage Assistance Under ARRA at its Unemployment Resources section of Tools and Services

While I could take the entire week to try and explain this program, the most important issue is that if you were involuntarily terminated from employment, such as laid off or fired due for any reason besides gross misconduct, you are eligible for nine months of your employers health care benefits at a 65% reduced rate of payment. Not a 65% rate reduction of your contribution to the health insurance plan, but of your employers cost of health insurance.

Under COBRA regulations, you'll have the same coverage, using the same plan you had while you were still employed. Some employers have an option of offering you additional coverage plans. Check with your former employer's HR department to see if you have a choice of plans.

You will also continue using your insurance plan just the way you used it before you were laid off.

What Kind of Insurance Will I Get?

It’s important to realize that not everyone is eligible for the COBRA extension:

If your company went out of business, there's no COBRA because there's no group health plan to continue on. If you were fired for gross misconduct, you're not eligible. And COBRA doesn't apply to companies with fewer than 20 employees. (But 39 states plus the District of Columbia have "mini-COBRA" laws that extend COBRA rights to smaller employers' workers. The federal subsidy applies to mini-COBRA plans, too.)

After your nine-month subsidy runs out, you're entitled to continue your COBRA coverage for another nine months, or 18 months total, but you'll have to start paying the full cost. You have 60 days to choose that option, so you might consider waiting to see whether you get a new job before the deadline.

Not everyone who loses a job is eligible for COBRA

While the COBRA extension may be a decent deal for many, it’s still an expensive outlay, especially if you are solely dependent on unemployment benefits.

Under the original COBRA legislation, involuntarily terminated workers were required to pay 100 percent of the health care premium plus an additional 2 percent to cover administrative costs. According to Hewitt data, this translates to roughly $8,800 a year in COBRA health care costs for the average worker. Under ARRA, eligible workers receive a nine-month subsidy that leaves them responsible for paying only 35 percent of the COBRA premium, or about $3,000 a year. Hewitt research shows that on average, workers with employer-sponsored health coverage pay 22 percent of the premium cost, or $1,900 a year.

"The COBRA subsidy significantly reduces the cost of health care coverage for workers who were laid off. However, the average American may still find it difficult to pay for this benefit when they have less income coming in, which is perhaps why enrollment numbers didn't jump higher," said Karen Frost, Hewitt's Health and Welfare Outsourcing leader. "It's possible these laid off workers are simply seeking coverage with a new employer or through their spouse's employer. Unfortunately, it's also likely that some are just foregoing health insurance altogether."

COBRA Enrollments Spiked in Most Industries Experiencing Mass Layoffs

Paying $3000 for a year of health care is likely more than many families can afford when unemployment is the main source of funds. If you are receiving $1200 a month in unemployment benefits, then paying $250 a month for health insurance eats up 20% of your unemployment benefits. Add food and shelter to the mix and health care is the most likely expense to be dropped.

I look forward to this evening’s speech in hopes that the President brings some clarity to the health care debate. The death camp crowd has had their day and now it’s time for a reality check.

As the following list vividly shows, we are paying more than most industrialized countries for health care but are trailing the pack of those nations when it comes to results:

The World Health Organization's ranking of the world's health systems

Our health care system is fragmented, poorly regulated, very expensive, unfair and cumbersome to put it mildly. It’s vital that health care be fixed because in the richest country on Earth there is no reason why any family should have to decide between paying the mortgage or the health care premium.

you can watch the speech without mindless commentary at: C-SPAN