Make the Most of Your COBRA Subsidy

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Unemployed consumers who took advantage of the government's COBRA subsidy now have six more months of reduced insurance costs. Do you qualify?

What the subsidy is: The federal stimulus plan enacted earlier this year included a subsidy to help people pay for health insurance through the Consolidated Omnibus Budget Reconciliation Act, or COBRA. COBRA lets you obtain health insurance from your former employer at roughly the same group rate the employer pays. With the subsidy, the former employee pays 35% of the premiums, while the government covers the rest.

What the extension means: Employers were required to notify eligible individuals about the original subsidy by mid-April 2009, and former employees then had 60 days to enroll — meaning most people who took advantage of the subsidy did so by mid-June. As a result, the subsidy coverage period for many people was about to end — or already had — when the extension was passed. Those whose coverage already ended now have until Feb. 28 to re-enroll and take advantage of the extended subsidy.

"Millions of unemployed Americans and their families will be better able to afford and keep their health benefit coverage because of this new law," said Phyllis C. Borzi, assistant secretary of the Dept. of Labor's Employee Benefits Security Administration, in a news release announcing the extension.

Is COBRA your best option? While the subsidy helps with a big chunk of COBRA premiums, coverage can still be expensive. Depending on your situation, you may be able to find a better deal by shopping around for a non-COBRA plan on your own. "Most people don't need all the benefits in a group plan, and therefore may be able to save money by finding an individual plan that meets their specific needs," says Sam Gibbs, vice president of consumer affairs for eHealthInsurance (Stock Quote: EHTH), a major online health insurance resource. The site has a COBRA resource page which allows you to compare your COBRA premiums — both subsidized and unsubsidized — to the rates available through other plans.

Gibbs points out, for example, that single male employees are often required to shoulder some of the costs of maternity benefits included in their employer's group plan.

When searching for their own plan, these consumers would be able to eliminate those unneeded benefits — and the related costs.

Likewise, people who regularly take advantage of cheap prescription deals at Wal-Mart (Stock Quote: WMT) and other stores may not need an insurance plan with prescription coverage.

Start shopping around early: Even if you decide to ride out the subsidy extension, it's a good idea to start checking out your options now. Remember, COBRA coverage — whether subsidized or not — runs out 18 months after you lose your job. Another thing to keep in mind: you might need to continue your own coverage, even when you're no longer unemployed. "A lot of companies, especially smaller ones, aren't offering insurance to employees, so even if you find a new job, you may still need a plan," Gibbs said.

Setting up a new plan can take time, so don't wait until the last minute. Gibbs advises allowing at least one to two months for the enrollment process to be complete and your coverage to go into effect. One last important piece of advice: "Make sure to wait until you have written confirmation that your new plan is in effect before cancelling your COBRA coverage," Gibbs said. "Otherwise, you may have a lapse in coverage. Worse yet, if your new plan falls through, you might end up with no coverage at all."

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