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Joseph L. Stark: COBRA health insurance changes policy

It's the Law

Posted: September 3, 2009 9:59 p.m.
Updated: September 3, 2009 9:55 p.m.
In today's economy, many individuals are, unfortunately, becoming familiar with the difficulties of retaining insurance coverage in the face of layoffs and other involuntary terminations.

For many years now, employers have been obligated to provide an opportunity to former employees to retain their insurance coverage upon involuntary termination.

In many instances, such coverage was prohibitively expensive - particularly for someone newly unemployed.

Until recently, this usually meant having to come out of pocket a significant sum of money each month to pay for the full cost of an employee's insurance often costing more than was originally being paid by the employer for the same coverage.

In conjunction with the March 1, federal economic stimulus bill, Congress passed some significant changes to the provisions of COBRA.

These changes apply for only a limited number of individuals within a short window of time.

Under the new provisions of COBRA, an eligible employee (known as an "Assistance Eligible Individual") is someone who has been laid off or lost their job (involuntarily) between September 1, 2008, and December 31, 2009, (unless the program is extended).

Under these new terms, a qualifying employee need only pay 35 percent of the premiums that were previously paid by the employer for the employee's insurance under the employer's group plan.

The balance of the premium must still be paid by the employer who then qualifies for a tax reimbursement from the Federal Government.

The revisions apply to all types of insurance coverage including dental and optical coverages.

Furthermore, the subsidy program applies to coverages afforded to qualified beneficiaries under an employer- sponsored health plan.

In other words, if your spouse or children are covered under the group policy at the time of termination, they are also entitled to
receive continued benefits at the reduced premium amount.

If the employer wishes to do so, it can substitute a different insurance policy or COBRA policy as long as it does not cost more and provides the same benefits as the insurance it is replacing.

Because the revisions are partially retroactive, employees who lost their jobs between September 1, 2008, and March 1, 2009, when the revisions were passed may still be eligible for this program to some extent.

Employers are obliged to give qualifying individuals a second chance to "opt in" to the COBRA plan now that the subsidies are in place.

If you were involuntarily terminated from your employment during the retroactive period and have not received an updated quote for a COBRA policy from your former employer (and you would otherwise still qualify for the COBRA plan because you have not become eligible for a replacement plan and the time period for COBRA eligibility has not elapsed) you should contact your former employer's Human Resources department promptly to obtain this information.

Under the program, an employee is entitled to receive this subsidized premium rate for nine months from the date of eligibility or for the remaining period of their COBRA eligibility whichever is shorter.

The customary period of eligibility varies from 18-36 months depending on the circumstances. The subsidy is not considered income for purposes of federal income taxation.

A cautionary note: If you become eligible for any kind of replacement insurance from any other source (like a spouse's plan or you get a new job with benefits) you must inform your former employer immediately and the subsidy terminates.

If you fail to do this, you may be liable for up to 110 percent of the amount of the subsidy paid on your behalf to the employer.

Joseph Stark is an attorney with Joseph L. Stark & Associates. They specialize in the representation of public entities and business litigation of all kinds including labor and employment matters. He can be reached at (661) 799-1880. His column represents his own views and not necessarily those of The Signal. "It's The Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. Nothing contained herein shall be or is intended to be construed as providing legal advice.


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