COBRA Subsidy is Gone: Now What?

If you lost your job May 31, Uncle Sam will pay 65% of your COBRA health insurance bill for up to 15 months. But if you lost it June 1, you’re on your own.

The 65% subsidy was part of the $787 billion stimulus legislation passed in 2009. The subsidy was originally slated to last nine months, but was later increased to 15 months. It applied to those who lost their jobs between September 1, 2008, and May 31, 2010. There was talk of extending the benefit until the end of 2010, but Congress ultimately concluded the nation couldn’t afford the additional $7.8 billion it would have cost.

COBRA refers to the federal law guaranteeing that all workers are entitled to retain their health insurance coverage from former employers for up to 18 months after leaving a job, but it doesn’t help with the cost. Under COBRA, former employees must pay the entire premium, not just the portion they paid when they were employed.

According to Families USA, a consumer advocacy group, the monthly premium on a COBRA policy uses an average of 84% of a typical unemployment check, leaving those without savings, other income or help from the government unable to maintain their health insurance policies.

CNN Money recently asked people to write in and describe how they’re coping, and the stories they got back weren’t pretty. An example from that article:

Debbie McBride knows exactly what the newly unemployed are going through. McBride, who lost her administrative assistant position at an aerospace company in February 2009, just exhausted her 15-month subsidy and is now left to fend for herself.

Unable to afford her $390 unsubsidized monthly premium, McBride refilled her five prescriptions last month. She has looked for cheaper health plans but can’t find one, especially now that she has diabetes.

McBride has yet to pay her June premium because she doesn’t have the funds. The La Habra, Calif., resident said she doesn’t know what to do.

“Where are we supposed to get the extra money?” she asked.

Options for those who can’t afford COBRA

For some of those unable to afford their previous employer’s health insurance without the COBRA subsidy, finding a replacement policy will be relatively painless. For others it will be impossible.

Several websites, including MoneyTalksNews.com, can help you search among health insurance providers to find the least expensive policy.

Search insurance policies on MoneyTalksNews.com.

If you’re young, healthy and willing to choose a high-deductible policy that offers what’s known as “catastrophic coverage” (for example, a policy that only covers qualified expenses in excess of $5,000 per calendar year) you might find coverage for less than you were paying under COBRA – even with the 65% subsidy. A mid-20s person in good health can probably buy that kind of coverage for less than $200 a month.

But the older you are, the more you’ll pay. If you need medication and/or regular doctor visits, the cost of a policy may be prohibitive. And if you have a pre-existing medical condition that renders you uninsurable, the only way you’ll have any kind of insurance is to be part of a group plan – which means either sticking with your former employer’s plan under COBRA for as long as you can, or finding a new group.

There’s also Medicaid. While Medicaid qualifications differ from state to state, in general there are three main groups of people who are eligible: children under 18 (under 21 in some programs), pregnant women and those in families with small children. If you’re not in one of those groups, you’re probably out of luck.

Learn more about Medicaid from the Department of Health & Human Services.

While health care reform is still a controversial topic with plenty of potential drawbacks (example: check out this recent story about a coming tidal wave of tax forms), one of the primary features of the new law is helping the unemployed maintain health insurance, as well as providing subsidies, free health insurance for those who can’t afford it, and a guarantee that you can’t be turned down for pre-existing conditions.

Check out ‘8 Positive Changes Because of Health Care Reform’.

Too bad many of those benefits won’t be entirely available until 2014 – a date by which many of today’s unemployed workers will either be broke – or worse. If you’re interested, here’s the time line for health care reform.