For laid-off workers, new law takes sting out of COBRA premiums

When Elizabeth Romanaux was laid off from the Liberty Science Center in Jersey City, N.J. on Feb. 27, she was hired back almost immediately to work three days a week doing grant writing and public relations for the museum, located just outside New York City.

"I'm grateful for the work; it's still fun to do even though the circumstances have changed," said Romanaux, 53. That included a loss of her health insurance benefit, a "painful blow" for the science center's former vice president of communications.

But thanks to a new law, Romanaux enjoys the same medical and vision benefits as before -- and pays just $140 a month, meaning she will save more than $2,300 over the course of 2009.

"I was just thrilled to hear that the government was doing this because it takes so much of the pressure off," she says. "I went to Wellesley College and I've never accepted any government benefits of any kind. But I was not the least bit ashamed about accepting this."

Nor is Romanaux alone: far from it. As one of the millions laid off during the current recession, she's taking advantage of provisions under the American Recovery and Reinvestment Act (ARRA), signed by President Obama at a ceremony in Denver on Feb. 17-just a week before Romanaux lost her full-time job.

ARRA creates reforms in the U.S. Department of Labor's COBRA insurance program. By federal estimates, more than 3.6 million Americans have lost their jobs since the recession began in December 2007 under former President George W. Bush. (COBRA, by the way, stands for the Consolidated Omnibus Budget Reconciliation Act. It's a 1985 federal law that allows those who lose their jobs or have their hours reduced to continue their group health insurance plans for limited periods of time.)

For those going from employer insurance to a self-employment scenario, the ARRA provides up to nine months of subsidized COBRA health insurance continuation. While COBRA can provide excellent temporary coverage for workers between jobs, its expensive price tag has forced some workers to forgo the benefit, even to the point of playing "insurance Russian roulette." That is, they bet on avoiding a major illness while they search for new work, and a new health plan.

The new law changes the need to take that risk, and here's how it translates in dollars and cents. A typical family premium on COBRA costs more than $1,000 a month. But the act provides a 65% subsidy for COBRA premiums for up to nine months for people involuntarily separated from their jobs between Sept. 1, 2008 and Dec. 31 of this year. Thus a family that takes advantage of the nine-month subsidy can save more than $5,800 in health insurance costs.

The Joint Committee on Taxation and Congressional Budget Office project that some 7 million people will find financial relief to offset their health insurance expenses under the ARRA. But not everyone qualifies; assistance is limited to individuals with adjusted gross incomes up to $125,000, and families up to $250,000.

"With the rising unemployment rate, these changes are a positive temporary solution for those eligible, and will make COBRA coverage more affordable," says Tracey Baker, vice president of CJM Wealth Advisers and co-author of "Navigating Your Health Benefits For Dummies." (The book is free at PlanforYourHealth.com, a health benefits education Web site where Baker serves as an advisor.)

Baker cautions that you have to leave a job with health benefits to take advantage of this government perk. "The subsidy only benefits those who lose their employer-sponsored health insurance because of involuntary job loss or a layoff," she notes. "It does not help the [already] self-employed or those who don't already have access to continued coverage under COBRA through an employer."

What's more, those who take advantage of the new law must keep in mind that while COBRA coverage can extend to 36 months, the subsidy only applies for nine months. After those nine months expire, Baker points out that COBRA goes back to being quite expensive; you pay 100% of the insurance premium (including whatever your former employer covered), plus a 2% administrative fee. There's a time limit to when you can apply as well; once your former workplace notifies you of the new COBRA benefit, you have 60 days to take advantage of it.

The new subsidy could also provide quite the break for potential entrepreneurs hoping to make the most of being laid off. "With the stimulus plan picking up 65% of health coverage it would only make sense for someone who might have been 'thinking' about going self-employed" after losing their job, says Kristin Oberlander, spokeswoman for the National Association for the Self-Employed.

As for Romanaux, the federal help couldn't have come at a better time. She lost her husband last year; "He had a heart attack and died in front of me at dinner one night," she said. When she lost her job months later, it marked another major life stress, one that the ARRA discounts have helped to ease.

Now, she says, "I'm concerned about what happens when the [COBRA subsidy] expires. I don't qualify for Medicare, and at my age, buying insurance without a group is going to be massively expensive. So I'm waiting to see what Mr. Obama does about major medical coverage."