Thursday, April 2, 2009

COBRAs bite two ways

April 18 is a big deadline for employers wrestling with their health care costs, business consultants say. It's also the beginning of a potential eye-popper for us downsized workers too.

Basically, it is 60 days after President Obama's signing of the American Recovery and Reinvestment Act of 2009, the stimulus bill, and the deadline by which employers must offer subsidized COBRA health plans to any workers laid off since Sept. 1 who want the coverage.

Like those zero percent credit card offers we used to get before finance markets froze, the subsidized plan seems a sweet deal at first. COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1986, a then-groundbreaking law designed to help workers stay on their employers' health plan after losing a job.

Under the old rules that will change April 18, departing workers pay all the premiums for the coverage, which usually is two times or more higher than their former co-workers still on the job.

Under the new rules, employers pick up 65 of the premiums for nine months. That could get pricey; they must offer the plans to workers laid off Sept 1 or later, even if the workers turned down COBRA coverage at the time. Employers get a pocketful of tax credits to absorb at least some of that higher cost.

Workers get a break now, but pay radically higher costs when the subsidy runs out. The numbers from my last job are pretty typical. My wife and I pay about $230 a month for subsidized COBRA coverage now. It jumps to about $750 - the equivalent of two and half unemployment checks - when the subsidy ends.

We get good at math when we are between jobs. Only 9 percent of us who push pencils on this problem end up keeping COBRA coverage, according to the Commonwealth Fund, a New York foundation advocating more efficient health care. The rest of us either buy private insurance for our selves and families or we go on the crossed fingers and emergency room plan.

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