Health Insurance Assistance for Unemployed
The February stimulus package includes a valuable benefit for workers who lose their health insurance when they lose their jobs. This government subsidy should help more unemployed people afford to keep their insurance.A federal law known as COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) generally requires companies with at least 20 employees, that offer health insurance as a benefit, to offer coverage to workers who leave or lose their jobs.
Relatively few employees take up their former bosses on this deal, though, because of the high cost of COBRA. While employers often pay two-thirds or more of the cost of health insurance for their employees, in most cases an ex-employee has to pay 100 percent of the cost, plus a 2 percent administrative fee.
But the new law slashes the cost.
For employees involuntarily terminated (other than for gross misconduct) from September 1, 2008 through December 31, 2009, the federal government will pick up 65 percent of the COBRA tab. That’s right. If you’re laid off and want to continue your health coverage, Uncle Sam will pay most of the cost for you.
If you would otherwise have to pay $1,200 a month for family coverage under COBRA, for example, your cost will drop to $420. The feds will pay the other $780. Since the subsidy can last for as long as nine months, this would be worth more than $7,000 in this example.
If you’re paying for COBRA coverage now, when will you feel the relief? Your premiums should fall in March. (Employers actually have to pay the 65 percent federal share for you, then recover their outlays by reducing the taxes they pay to the government.)
This change can also help people who lost their jobs during the last four months of 2008 and decided not to use COBRA. Normally, you have to elect COBRA coverage within 60 days of the date you leave a job. But folks who lost their jobs after September 1, 2008 and turned down COBRA get another chance. Employers are supposed to contact eligible ex-employees and give them up to 60 days to sign up for COBRA at the deeply discounted price.
As with many tax breaks, there is an income cap for this subsidy. If you are single and your modified Adjusted Gross Income for the year falls between $125,000 and $145,000, at least part of the subsidy will be considered taxable. The same is true if you’re married and your income is between $250,000 and $290,000.
For income above $145,000 for single filers and $290,000 for married taxpayers, you have to report any COBRA subsidy received as taxable income. (Of course, that’s still a lot better than having to pay the full premium yourself.) For most taxpayers, modified Adjusted Gross Income is taxable income before subtracting the value of personal and dependent exemptions, and standard or itemized deductions.
