Cost of COBRA health insurance coverage to go down for most families

For many families, the loss of their job means not only the loss of their income, but also the loss of their health insurance. Employees of companies with 20 or more employees have had the right to elect COBRA coverage. But COBRA coverage has been expensive until now. COBRA health benefits have costed up to 102% of the cost of the underlying benefit.

Relief is on the way. Beginning March 1st, 2009, there is a change in the law that will mean that most families relying on COBRA for their health insurance will only have to pay 35% of the cost of the health insurance coverage. The exceptions are for employees who are fired for gross misconduct and employees who voluntarily quit their job and employees earning more than $145,000 a year.

There is a phase-out of the cost subsidy for employees earning between $125,000 and $145,000. There are increased taxes to recapture subsidized payments for people earning over $125,000 a year. You will, however, be permitted to opt out of the coverage if it doesn't benefit you. If you earned over the $125,000 threshhold, talk to your tax advisor to see how the plan impacts you and make an informed decision as to whether you want to opt out or take the benefit.

The subsidized coverage will only last for 9 months - or until you get new health insurance group coverage (except for group plans offering vision and dental coverage only), a flexible spending plan, an on-site medical treatment plan or if you become eligible for Medicare - whichever happens first. And if you get the new group health coverage and don't tell your old employer, you will be responsible for paying back 110% of the subsidy beginning when you get the coverage under your new employer's plan.

Even if you didn't take the COBRA coverage, or took it and then cancelled it, you will be offered coverage under the new law taking effect on March 1st. Your old employer will be notifying you by April 18, 2009 of your rights to elect the new COBRA coverage if it applies to you. Be looking for that notice in the mail.