Last Updated: February 2, 2009
If you're like most Americans, you're trying to figure out what the final version of the stimulus bill that President Obama will sign into law will contain and what it means to you, especially if you're unemployed or worried about your job and wonder how you'll pay for health care insurance.
At present, employers are required to offer COBRA (Consolidated Omnibus Budget Reconciliation Act)continuation health coverage for up to 18 months when you leave your job. But former employees must pay the entire cost of the insurance plus a 2 percent administrative fee, according to US News & World Report.
Congress passed the landmark COBRA health benefit provisions in 1986. It provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates, according to the U.S. Department of Labor's Web site. "The coverage, however, is only available when coverage is lost due to certain specific events," according to the Labor Department's Web site. "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." Learn more at the U.S. Department of Labor's Web site.
Under the U.S. House of Representative's version of the stimulus bill, the American Recovery and Reinvestment Act states that if you lost (or lose) your job between September 1, 2008 and December 31, 2009 as a result of the economic downturn, you would be eligible to receive a 65 percent subsidy towards your COBRA premium for up to 12 months. An estimated 8.5 million Americans could be helped by that provision, according to the Congressional Budget Office.
If you are 55 or older and have worked for your employer for 10 years or more, there's another provision of the House bill that would be of interest to you. Workers age 55 and older, and those who have worked for their employer for 10 or more years, would be able to retain their COBRA coverage until they become Medicare-eligible or secure coverage through a new employer, according to US News & World Report.
Until President Obama or the House signs into law some other version of the stimulus bill, you'll have to deal with COBRA as it's written now. FPA member, Chris Cooper, CFP®, president of Chris Cooper & Company, Inc. said these are the five most important facts you need to know about COBRA today.
- COBRA is available only to former employees who have been separated from service from an employer of 20 or more employees. More than 70 percent of employees work for employers with less than 20 employees, thus COBRA is not an option. Some of the health insurance carriers to these less than 20 employee groups do offer what is called "mini–COBRA", but this is not COBRA, and only lasts about six months.
- It might be difficult to choose between COBRA and HIPAA (Health Insurance Portability and Accountability Act). COBRA has an 18 month limit, or 36 months if you're permanently disabled. Most people are under the impression that COBRA is expensive or that it's better to stay with a plan they know. But here's the real problem: HIPAA provides that a person leaving a creditable health insurance plan may have coverage under another plan with no pre-existing conditions excluded. (To be HIPAA–eligible, you have to have been insured for 18 continuous months, and the most recent (last) day must have been under some kind of group coverage.) But here's the catch: The new insurance carrier can charge you as much as they please to accept you and your pre-existing conditions, and the premium may be higher than your monthly income. Thus, because one does not know when they are going to have a disease or an injury occur, it is far safer to not accept COBRA coverage, and instead apply directly for a HIPAA plan right away, before you develop a health problem or get injured. Otherwise, you run the risk that you will not be able to afford health insurance under HIPAA. (Most insurance is regulated by the state so policies will vary. Check State Health Facts for available plans, rules for individual coverage and small–group insurance and HIPAA policy rules, recommends Carolyn McClanahan, M.D., founder of Life Planning Partners.
- Beware of commercials pitching something that appears to be health care insurance but is in fact something called a defined benefit health reimbursement plan. Those are plans that might limit health care insurance coverage to $5,000 or more. The low premiums and the no pre–existing conditions exclusions make them sound appealing, but they are a waste of money. Such policies are not insurance, and you would be better off to buy real health care insurance even if you get exclusions for 12 months for pre–existing conditions. This, by the way, is state law specific.
- Dental and eye coverage is rarely available to individuals, and if they are, they don't cover much. Weigh the costs and benefits of these plans, and above all, do not skip your routine dental checkups every six months or your eye exams every year, as these can help prevent bigger more costly fixes by catching problems sooner than later. One of the biggest reasons older people end up in nursing homes is because they do not have their own teeth, and thus suffer from malnutrition. So, be willing to pay cash for these services as they prevent other problems.
- No one should gamble and go without health care insurance coverage. Hospitals and doctors can sue you for your house or other assets to pay your medical bills.