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Cobra Premium Reduction Act

The COBRA Premium Reduction Act was a provision in federal law that temporarily subsidized health-insurance premiums for workers who had lost their jobs, but wanted to hold onto the group health care benefits offered by their employer. Only workers who were laid off in a 21-month period between late 2008 and mid-2010 were eligible for the premium reduction.

  1. COBRA

    • COBRA gets its name from the Consolidated Omnibus Budget Reconciliation Act of 1985. This law requires most employer-provided health plans to allow workers to continue their insurance coverage for up to 18 months after leaving their jobs. To continue coverage, however, workers have to pay the full cost of the premiums themselves. This can be a huge increase from what they paid while they were working. BLR, a consultancy that advises businesses on complying with laws such as COBRA, reported in 2008 that private-sector employers paid 81 percent of the cost of premiums for individual workers and 71 percent of the cost of family coverage.

    Premium Subsidy

    • The American Recovery and Reinvestment Act of 2009, a federal economic-stimulus law, subsidized the premiums for some laid-off workers' COBRA coverage. Under the law, eligible workers had to pay only 35 percent of the full premium for their COBRA coverage for 15 months. Their insurers then got a federal tax credit equal to the remaining 65 percent of the premium. So if a worker had premiums of $10,000 for a year's worth of COBRA coverage, she would have had to pay only $3,500, and the insurance company would have been able to reduce its income tax bill by $6,500.

    Eligibility

    • Workers can get COBRA coverage even if they leave their jobs voluntarily. But the premium reduction was available only to those who had been laid off. Workers were eligible if they lost their jobs between September 1, 2008, and May 31, 2010. Workers could not get the reduction, however, if they were eligible for Medicare or for coverage under another group health insurance plan---for example, one offered by their new employer or by their spouse's employer. It didn't matter whether a worker was actually covered by another group plan; if the worker was eligible for such coverage, he couldn't take the subsidy.

    Time Frame

    • Though a worker could maintain COBRA coverage for 18 months, the premium reduction was good for only 15 months. If she wanted to maintain her coverage for the final three months, she had to pay the full premium. Eligibility for the premium reduction ended on May 31, 2010. Workers who were already receiving the reduction at that time could continue getting it for the full 15 months, but workers who lost their jobs on June 1 or later were not eligible at all.

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