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COBRA Subsidies to End but When? Posted: November 17th, 2009

By Sanford Ellowitz

Sanford Ellowitz is a New York State licensed insurance agent. He is also a Certified Financial Planner and a Certified Employee Benefit Specialist. He has over 25 years experience in the insurance and financial services industries.

The subsidy for COBRA coverage for laid off workers expires for many. New legislation may extend it. Find out more about these government subsidies, COBRA, and how much time is left on the clock.

Subsidized COBRA Coverage Expires for Many

As part of the effort to help workers affected by the recession, the federal government is subsidizing 65 percent of the cost of Consolidated Omnibus Budgetary Reconciliation Act of 1968 (COBRA) health benefits for those laid off from September 1, 2008, through December 31, 2009.

The legislation set the subsidy to last for 9 months, so those receiving the subsidies since the program started have reached its end, while it will soon end for many more. For those who have still not found employment with health benefits, continuing their coverage without the subsidy could lead to severe financial problems.

To help counter this, new legislation has been introduced to extend the length of the subsidy to 15 months as well allowing those laid off through June 30, 2010 to be included.

How COBRA Works

COBRA establishes the rights of certain individuals to continue their group health insurance if various qualifying events, such as a job loss, cause them to lose their coverage. The act allows them to continue their coverage at group rates for 18 months, making for affordable, if not cheap, health insurance.

Though COBRA rates are far lower than for individual policies, they are still very high as the laid off employee has to pay both their share of the cost of the policy as well as the share that had previously been paid for by their employer.

The Effect on Insurance Companies

COBRA coverage typically causes losses for health insurance companies as many of those who enroll in it need ongoing treatment, while those who are healthier, and less expensive to cover, tend not to take the coverage. With the increase in COBRA enrollment due to the subsidy, a number of insurance companies are now sustaining large losses on these policies.

This is happening at the same time that they are facing a decline in policyholders, as many companies have dropped health insurance coverage due to the economic downturn.

The Subsidy Has Worked

The subsidy has been effective in providing some of the cheapest health insurance available to those who qualify. The number of laid off workers who registered for COBRA benefits has increased from the previous 19 percent to 38 percent of those eligible. Whether or not this legislation to extend the benefits will go through remains to be seen--as does its effect on the health insurance industry.

Sanford Ellowitz
Sanford Ellowitz is a New York State licensed insurance agent. He is also a Certified Financial Planner and a Certified Employee Benefit Specialist. He has over 25 years experience in the insurance and financial services industries. His experience includes financial analysis, product development and marketing. He provides insurance planning and product sales.