Monday, April 20, 2009

COBRA/ARRA: Misinformation Abounds

[Welcome New York Times and Industry Radar readers!]
Had a call today from a prospect looking for information on COBRA/ARRA, specifically how she could access the gummint's subsidy. It seems that until recently, she worked at a large national retailer which had shuttered its doors. She was under the impression that she could still elect COBRA (this was understandable, since she had already received the required paperwork for continuation). Unfortunately, the company folded before she could complete, let alone return, the forms.
In the event, it wouldn't have mattered had she been able to do so, since that option evaporated with the company:
COBRA allows one to continue coverage even after one has left an employer. If that employer subsequently goes bankrupt (completely, not a reorganization plan), the insurance goes away; there is nothing to "continue."
[ed: Some states require carriers to offer "conversion plans" in certain circumstances, but that wasn't the case here]
If there's nothing to continue, there's nothing to "subsidize." Indeed, since the company no longer exists, it's not possible for it to pay the 65% at issue. Being a persistent sort, my caller opined that this was okay, she'd opt for an individual medical plan, "since the government's subsidizing it anyway."
Once again, I had to explain that this was not the case (and it's truly disturbing how much misinformation abounds out there): the government never directly paid the subsidy anyway, and there was no provision for any subsidy for non-group plans [ed: Hush up - don't give 'em any ideas!].
In short, if your (previous) employer goes belly-up, so does your COBRA-based health insurance. By the way, this can also happen if the employer simply decides to cancel the group plan altogether (although, in that case, a conversion plan may be available). This is especially problematic for folks with chronic and/or severe pre-existing conditions.
This is just one more reason why I generally suggest to folks that they get off of COBRA as quickly as possible. If you're not on it, it can't bite you.
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