For Professionals: Medicare and Other Health Insurance

Are You Eligible for a 65% Reduction on Your COBRA Premiums? FAQs on Recovery Act’s COBRA Subsidy

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Updated: May 14, 2009

As of March 2009, California’s umemployment rate was up to 11.2%, equaling over 2 million people in the state without work. While companies are required to offer continuation health care coverage to employees who are involuntarily terminated from their jobs (mandated by COBRA, a federal law that requires employers with more than 20 employees, and CalCOBRA, a state law that requires employers with fewer than 20 employees to offer continued health care coverage), many people cannot afford this coverage as premiums often run several hundred dollars per month. The American Recovery and Reinvestment Act of 2009 (ARRA) helps people whose employment was involuntarily terminated by offering a 65% subsidy on the cost of COBRA premiums for up to 9 months. A new California law signed by the Governor on May 12th, allows those qualifying for CalCOBRA because of involuntary job loss to receive the same federal subsidy. The law also requires health plans to alert people to the availability of the subsidy. Effective immediately, this law will help as many as 100,000 unemployed Californians and their family members receive the federal subsidy.

Below are some common questions and answers about this subsidy, such as who is eligible, how it works and clarification on the additional election period for people who first declined COBRA or CalCOBRA. See the Department of Labor’s website for more COBRA information.

  1. Who is eligible for the COBRA subsidy?
  2. If I am eligible, how long does the premium subsidy last?
  3. Who is eligible for a new, second election opportunity for COBRA coverage?
  4. How do I apply for the premium subsidy?
  5. Is the 65% premium subsidy paid to me?
  6. What are the COBRA subsidy notice requirements from my health plan?
  7. I am eligible for the premium subsidy and have been enrolled in COBRA coverage since December 2008 when I lost my job. Will I receive a refund of 65% of all the premiums that I have already paid?
  8. How can I file an appeal if my former employer’s group health plan denies my application for the premium subsidy?
  9. What are some additional resources for more information?

1. Who is eligible for the COBRA subsidy?

You’re eligible if you qualify for COBRA or CalCOBRA and:

  • Are eligible for COBRA or CalCOBRA due to involuntary job loss during the period from September 1, 2008 through December 31, 2009; and
  • Choose COBRA coverage either when it is first offered or during the additional election period provided by the Recovery Act. This additional election period is for people who first declined COBRA when eligible or had COBRA and dropped it, often due to COBRA’s high expense. (See below for more details on this election period.)

NOTE: if you are eligible for Medicare, or for other group health coverage (such as through a new employer’s plan or a spouse's plan), you are not eligible for the premium subsidy.
Note: Any employee whose job was terminated due to gross misconduct will generally not qualify for COBRA or the premium reduction, nor will their dependents.

Be aware that electing the premium subsidy disqualifies you for the Health Coverage Tax Credit, which could be more valuable to you than the subsidy. Additionally, individuals with incomes over $125,000 or over $250,000 for married couples may have to repay the amount of the premium through an increase in their income taxes. See the IRS web page on ARRA for more information.

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2. If I am eligible, how long does the premium subsidy last?

Your premium subsidy can last up to 9 months. However, it will end earlier in two situations:

  • You become eligible for Medicare or another group health plan (such as a plan sponsored by a new employer or a spouse’s employer). Note: if you are paying the reduced COBRA premium, you must notify your plan if you become eligible for coverage under another group health plan or Medicare. Failure to do so can result in a tax penalty.
  • You were already on COBRA or CalCOBRA before the Recovery Act and you reach the end of your maximum COBRA coverage period. See our chart on maximum COBRA coverage periods.

If you continue your COBRA or CalCOBRA coverage after the premium subsidy period, you may have to pay the full amount of the premium. If you don’t, you may lose your COBRA or CalCOBRA coverage. Contact your plan administrator for more information.

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3. Who is eligible for a new, second election opportunity for COBRA coverage?

People who involuntary lost their jobs from September 1, 2008 through February 16, 2009 who did not enroll in COBRA coverage when it was first offered or who did enroll in COBRA but no longer have it (for example, those who dropped COBRA coverage because the premiums were too expensive) have a new, second election opportunity. These people should have received a notice from their former employer informing them of this opportunity on or before April 18, 2009; they have 60 days to elect COBRA after receiving the notice. COBRA elected during this special election period begins on or after February 17, 2009.

Under California’s new law (AB 23), people who previously declined CalCOBRA coverage or dropped it due to cost, also have this same second election opportunity.

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4. How do I apply for the premium subsidy?

If you were covered by your employer’s health plan on the last day of employment, your plan should provide you with a notice explaining how to enroll in COBRA or CalCOBRA and receive the premium subsidy. The notice should include any necessary enrollment forms. You can also contact your plan directly to ask about taking advantage of the premium reduction.

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5. Is the 65% premium subsidy paid to me?

No. You will not receive a payment. Those qualified for the subsidy are only responsible for paying 35% of the COBRA premium for the period of coverage. The remaining 65% of the premium is reimbursed directly to the employer, plan administrator, or insurance company through a payroll tax credit.

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6. What are the COBRA subsidy notice requirements from my health plan?

Plans and issuers are required to notify those who qualify for the premium subsidy about the premium reductions and other rights under the Recovery Act. The notices include the following:

  • A general notice to all qualified people, whether they are currently enrolled in COBRA coverage or not, who have a qualifying event during the period from September 1, 2008 through December 31, 2009. This notice may be provided separately or with the regular COBRA election notice following a COBRA qualifying event.
  • A notice of the extended COBRA election period to any people eligible for this election period: 1) those who had a qualifying event at any time from September 1, 2008 through February 16, 2009; and 2) those who either did not elect COBRA continuation coverage or who elected but subsequently discontinued COBRA. This notice should have been provided by April 18, 2009 – 60 days following February 17, 2009.

California’s new law (AB 23) requires health plans to inform qualified people of the premium subsidy if they have or become eligible for CalCOBRA as well.

You can view model notices on the Department of Labor’s website.

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7. I am eligible for the premium subsidy and have been enrolled in COBRA coverage since December 2008 when I lost my job. Will I receive a refund of 65% of all the premiums that I have already paid?

No. The premium reduction provisions apply only to premiums for coverage periods beginning on or after February 17, 2009.

However, if you were eligible for the reduction but paid in full for periods of COBRA coverage beginning on or after February 17, 2009, you should contact your plan administrator or your employer sponsoring the plan to arrange a credit against future payments (or refund in certain circumstances).

Basically, your plan can apply a credit as long as the credit can be used within 180 days of the overpayment. Otherwise, you should be reimbursed for your overpayment within 60 days of your plan receiving your payment.

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8. How can I file an appeal if my former employer’s group health plan denies my application for the premium subsidy?

If your plan determines you’re ineligible for the premium subsidy, you can request an expedited review of this denial. The Department of Labor will handle appeals related to private sector employer plans subject to ERISA’s COBRA provisions. The Department of Health and Human Services will handle appeals for Federal, State, and local governmental employees, as well as appeals related to group health insurance coverage provided through state continuation coverage laws (such as CalCOBRA in California). The Departments must review your appeal within 15 business days of receiving your completed application for review.

Note: Appeals to the Department of Labor must be submitted on a U.S. Department of Labor application form. The form will soon be available at www.dol.gov/COBRA and can be completed online or mailed or faxed as indicated in the instructions. If you believe you have been inappropriately denied eligibility for the premium reduction, you can also speak with an Employee Benefits Security Administration Benefits Advisor at 1.866.444.3272 before filing this form.

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9. What are some additional resources for more information?

  • COBRA premium subsidy – Department of Labor website, includes separate info for employees and employers on frequently asked questions (FAQs), fact sheets in English and Spanish, IRS notices on the subsidy, how to file an appeal and more.
  • COBRA and CalCOBRA – Information on qualifying events, maximum coverage periods, premiums and how COBRA and Medicare work together.
  • Health Insurance Counseling & Advocacy Program (HICAP) – Provides free, individual counseling and assistance on Medicare and other health insurance related questions for Medicare beneficiaries and their families. Contact your local HICAP office online or at 1-800-434-0222.

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