Ask Money

Bankruptcy and Cobra

Chris Farrell Mar 9, 2009

Question: We hear lots about the Stimulus Plan helping folks pay for their health insurance when they go on COBRA, but what about people who lose their jobs when their company ceases to exist. There are presumably lots of folks in that bind. They are not eligible for COBRA but are newly unemployed. Is there any health insurance help for them in the stimulus plan? Rob, Seattle,WA

Answer: In essence, the rule called Cobra– Consolidated Omnibus Budget Reconciliation Act of 1985–requires most employers with group health plans to offer employees the opportunity to continue their health care coverage for up to 18 months. With the passage of the fiscal-stimulus package the federal government will now pick up 65% of the cost of Cobra for up to nine months.

However, you’re absolutely right: If a company liquidates and discontinues its health plans, COBRA coverage for its former employees isn’t an option.

The Department of Labor has a brief write-up on bankruptcy and Cobra. Here’s the key paragraph:

“If, however, your employer discontinues all its health plans, COBRA continuation coverage will not be available. You will have to seek other coverage. Other coverage may be available by converting your employer’s group health coverage to an individual policy. As mentioned above, you may also have rights to special enrollment in a spouse’s employer’s plan, or by being an “eligible individual” who is guaranteed access to individual insurance. The opportunity to buy an individual insurance policy is the same whether the individual is laid off, is fired, or quits his or her job. “

By the way, the Department of Labor has posted on its web site information on Cobra and the new subsidy on premium payments. However, the fiscal stimulus package is a huge bill so hopefully I’ve missed something. Is anyone aware of the new law changing the rules when it comes to liquidation and Cobra?

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