Software & Finance

Personal Finance - COBRA Medical Insurance Coverage

I have written an article on COBRA coverage on medical insurance.

In United States, medical insurances are sponsored mostly by employers as a group. Employers will pay 50% of the insurance cost for full time employees and employees need to spend the rest. If you spend $500 per month for medical insurance, then employer will sponsor another $500 towards your medical insurance. If you are a consultant, your employer may not cover any portion and you need to spend 100% of medical insurance cost, even if you participate in employer sponsored group plan. That's how the system works.

What happens to your medical insurance if you get laid off from your job? Until you find another job, can you keep your medical insurance sponsored by the former employer. The answer is YES. Once you get laid off, you are eligible to continue medical insurance through former employer under COBRA for 18 months from the date you get laid off or resign. COBRA refers to Consolidated Omnibus Budget Reconciliation Act.

If you resign your job, you have to provide 100% of medical insurance cost, if you need coverage from your former employer. Alternatively if you get laid off, you need to pay only 35% of cost of medical insurance. It became a law in early 2009 as a part of economic downturn in united states. It provides great relief to laid off employee searching for new job. This is an additional benefit provided by employers along with severance package.

Refer to the next section on law changes on COBRA for 35% contribution from employees and 65% contribution from employers.

Employees got laid off pay only 35% on medical insurance cost

With reference to IR-2009-15, Feb. 26, 2009, there is a significant
change to COBRA coverage. Refer to the following URL for complete details on this change.,,id=204709,00.html


The major highlight on this change is given in the following two paragraphs.

          "The American Recovery and Reinvestment Act of 2009, which became law last week, includes changes to the health benefit provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as COBRA. The new law will affect former employees and their families, employers and others involved in     providing COBRA coverage."

           "Under the new law, eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35 percent of the cost of COBRA coverage. Employers must treat the 35 percent payment by eligible former employees as full payment, but the employers are entitled to a credit for the other 65 percent of the COBRA cost on their payroll tax return."

It is not something new even many people are not aware of this.  The new thing is what is going on with Connecticut State Law Change given below:

Connecticut Extends the COBRA coverage from 18 months to 30 months

The length of coverage is usually 18 months. The interesting good thing here is, Connecticut State extends this COBRA coverage from 18 months to 30 months effective May 05, 2010. This is very good thing for former employees who are seeking for job. But at the same time, they do not get job for 18 months is a bad thing and refers to where the economy is leading now. It refers that Connecticut State has many people who got laid off before 18 months are still seeking for job.


The following is the notice sent out from insurance provider on Connecticut extension on 30 months health insurance coverage.



My question is whether other states will follow the Connecticut Extension 30 months health insurance coverage under COBRA plan? Also it is putting a new pressure on companies apart from severance package for US companies. Companies in USA might think more as laying off people also becomes expensive. Because of this move, percentage of chances of existing employee getting laid off will become less somewhat.

If the government keep increasing the tax rate for off shore project, it may force the US companies to keep the existing employees and hire local candidates.

Posted on July 30, 2010