Related Topics - Limited Help With COBRA Premiums

LIMITED HELP WITH COBRA PREMIUMS

The Trade Act of 2002, signed into law on August 6, 2002, provides limited help in paying COBRA premiums for workers displaced by import competition or shifts of production to other countries. New IRS Code Section 35 allows eligible individuals to take a federal income tax credit for up to 65% of COBRA premiums, starting in December 2002. The credit is calculated on a month by month basis.

The tax credit is available to taxpayers who are eligible for trade adjustment assistance and who have received the required government certification. It is also available to taxpayers age 55 and older, whose pensions are being paid by the Pension Benefit Guaranty Corporation. Eligible individuals may take the tax credit for COBRA premiums paid for coverage for themselves and for their spouses and other dependents. The tax credit is not available to taxpayers (1) who are covered by other insurance where the employer pays 50% or more of the cost; (2) who are covered by Medicare or by Medicaid; or (3) who are in prison.

The Treasury Department is supposed to establish a program by August 1, 2003, to pay the tax credit directly to insurance providers. Under the program, the federal government would pay 65% of the COBRA premium to the insurance company and the taxpayer would pay the remaining 35% of the premium.

The Trade Act also creates a second COBRA election period for workers who became eligible for COBRA when they lost their jobs and became eligible for trade adjustment assistance, but who declined COBRA coverage. The second COBRA election period starts on the first day of the month in which the worker becomes eligible for trade adjustment assistance and lasts for 60 days. However, the COBRA election under this second coverage period must be made within six months after the initial loss of health insurance. COBRA coverage will not be retroactive to the date health insurance coverage was lost, but it will run for the length of the applicable COBRA coverage period.

NOTE: On a related issue, a federal district court held that, despite the difficulties of his situation, a worker who cannot afford to pay COBRA premiums is not entitled to COBRA coverage. The worker in this case was diagnosed with cancer, quit his job, and declined COBRA. Two years later, he brought suit, arguing that his right to insurance vested at the time of his diagnosis and that equity required that he be excused from paying premiums. The court ruled that "COBRA expressly permits health plans to require the timely payment of a premium for continuation coverage." Butler v. Trustmark Ins. Co., 2002 U.S.Dist. LEXIS 14054 (S.D. Miss. 2002)