Red Hot Tips Point: Fired U.S. Workers Seek Health Plans as Subsidy Wanes : Margaret Collins

Sunday, August 23, 2009

Unemployed workers facing the end of a U.S. subsidy that pays 65 percent of their group health insurance premiums may be forced to find individual policies. Those who need it most might not qualify.

Diane Nelson, 48, of Riverview, Florida, has terminal lung cancer and worries she’ll have to stop medical treatments once her Cobra subsidy ends.

“I have no idea what I’m going to do come December,” said Nelson, whose husband lost his job in February. “We’ve been paying $377 a month. It will go up to $1,100.”

U.S. workers who lose their jobs can remain on their employer’s health plan for as long as 18 months under the 1986 law known as Cobra. Workers typically pay the entire cost of the premium, plus a 2 percent administrative fee.

The economic stimulus plan passed in February included a $24.7 billion subsidy to reduce health-care costs for the growing number of fired workers. It covers 65 percent of a monthly Cobra premium for up to nine months.

Cobra enrollments have doubled since the subsidy began, according to an analysis released Aug. 18 by Lincolnshire, Illinois-based Hewitt Associates Inc. It’s available for employees who lost their job from Sept. 1, 2008, through Dec. 31, 2009. The Joint Committee on Taxation estimates about 7 million people will use it for some part of 2009.

Employees of companies that went out of business or had fewer than 20 workers may not be eligible, according to the Department of Labor. The subsidy phases out for taxpayers with an adjusted gross income above $125,000 for an individual and $250,000 for those filing jointly.

‘Life Saver’

With the subsidy, the average family pays $377 a month, according to the Henry J. Kaiser Family Foundation of Menlo Park, California. The cost rises to $1,078 a month without it.

“The subsidy has truly been a life saver, a major reduction of monthly bills,” said James Fisher, 59, of New York City, who pays about $150 a month for coverage. He was fired in February from Hetrick-Martin Institute, a non-profit counseling center for teens.

The benefit expires in November for those who took the subsidy at its start on Feb. 17, according to the Department of Labor. The average time out of work is 25 weeks and the number of Americans out of work longer than 27 weeks rose by 584,000 to 5 million in July, according to the Bureau of Labor Statistics.

“Many of those people may butt up against this nine-month limit and at that point might not be able to afford their coverage,” said Karyn Schwartz, a senior policy analyst for the Kaiser Family Foundation.

Fast Growing

“The full cost of (unsubsidized) Cobra is typically more expensive than the cost of individual plans,” said Schwartz. “People with pre-existing conditions may end up paying more or get rejected.”

Individual plans, as opposed to an employer-sponsored group plan, are the “fastest growing sector of the business,” said Humana Inc. spokesman Mitch Lubitz. The number of customers has grown 17 percent in the past year to 345,000 in June 2009 from 295,000 in June 2008, he said.

The average monthly premium for an individually purchased policy was $217.75 for one person and $483.25 for a family in 2007, according to America’s Health Insurance Plans in Washington, which represents the health-care industry.

Insurers have added temporary plans with increased customization and more deductibles this year. “It was really in response to the changing market and the economy,” Lubitz said.

Short-Term Options

Humana, based in Louisville, Kentucky, began offering short-term insurance in April for unemployed or part-time workers. Applicants can choose from many features found in group health plans, Lubitz said, and may opt for a policy length from 30 days up to six months or one year. Humana added individual dental and vision options in May as many Cobra users were continuing to pay for dental coverage, Humana’s Large Group Actuarial Director Beth Grice said.

Golden Rule Insurance Co., a subsidiary of UnitedHealth Group Inc., started offering dental and vision plans in the past 12 months, said Ellen Laden of the Indianapolis-based company. The company also added two temporary plans in June, “for consumers whose lives are in a time of transition,” Laden said.

A family of four, with parents in their mid-30s and two children under age 10, who choose 6-month coverage with a $1,000 deductible would pay between $133 to $163 in monthly premiums, she said.

‘Slowly Sinking’

Policyholders with a pre-existing condition should stay on Cobra because it’s most likely cheaper and they could be rejected for an individual plan, Laden said. It’s also possible for a company to charge a higher rate when renewing a short-term policy, Kaiser’s Schwartz said, and individual plans may offer a smaller range of benefits than group plans.

“I’ve looked into other insurance, but I’ve been denied a couple of them because it’s a pre-existing condition,” Nelson, the cancer patient, said. Her husband, who was fired as a heavy- equipment mechanic in February, has found work as an auto mechanic but doesn’t receive health benefits, she said.

“We’ve deplenished our 401(k)s and are trying to keep our heads above water, but we’re slowly sinking.”

If you decide to switch, make sure you’re accepted into another plan before you stop payment, Golden Rule’s Laden said, and don’t assume that a new employer’s coverage will start the day you do.