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You might qualify to extend your health benefits if you’re laid off

Even if you’ve done everything you’re supposed to do to prepare for a layoff – built up an emergency fund, paid off your credit cards, set up an account on LinkedIn – losing your employer-provided health insurance could demolish your finances. Your health could suffer, too.

While many insurers offer individual policies, they’re primarily targeted at the young and healthy. Individuals who are older or have medical problems are often turned down or charged prohibitively high rates.

The economic stimulus package enacted this year seeks to address this problem by lowering the cost of continuing your former employer’s health insurance. Unfortunately, many laid-off workers are discovering that they’re ineligible for this subsidy. Others may need to take extra steps to demonstrate they’re qualified.

Under the federal Consolidated Omnibus Budget Reconciliation Act, or COBRA, laid-off workers can continue their former employer’s health coverage for up to 18 months. In the past, participants had to pay 102 percent of the premiums, making COBRA unaffordable for most unemployed workers.

The stimulus package subsidizes 65 percent of COBRA premiums for up to nine months for individuals who were laid off between Sept. 1, 2008, and the end of this year. With the subsidy, the average family will pay $377 a month or $140 for an individual, according to the Kaiser Family Foundation.

That’s still more than most employees pay for insurance while they’re working. But if you’re eligible for the subsidy, you should try to take advantage of it, says Ron Pollack, executive director of Families USA, a health care advocacy group.

Signing up for COBRA will allow you to continue the same coverage you had when you were working, even if you or anyone in your family has medical problems. In addition, it will preserve your ability to get insurance in the future, even if you have a pre-existing medical condition.

Reasons you may be ineligible for the COBRA subsidy:

- Your former employer has gone out of business or terminated its group coverage. These companies are no longer covered by COBRA, says Michael Langan, principal at Towers Perrin, a human resources consultant.

- You lost your job because of gross misconduct or left voluntarily.

However, recently issued guidelines from the IRS “take a very liberal position” on what constitutes involuntary termination, Langan says. For example, if you’re unemployed because your employer closed your branch, that counts as an involuntary termination, Langan says, even if your company offered you a job in another part of the country.

Similarly, employees who accepted a buyout because their employer said the offer would be followed by layoffs qualify for the subsidy, he says.

The Labor Department has an appeals process for unemployed workers who were denied the subsidy. For more information, go to www.dol.gov/cobra.

Mini COBRA laws

Some individuals who worked for small companies may also be ineligible for the subsidy. The federal law applies only to companies with 20 or more workers.

More than 39 states and Washington, D.C., have enacted “mini COBRA” laws that require small companies that provided health insurance to allow former employees to extend their coverage. Jobless workers who are covered by a state mini COBRA law could qualify for the subsidy.

But if you worked for a small company and are out of work, there are a couple of things you should keep in mind. First, mini COBRA laws – and the subsidy – apply only to workers who had group coverage in the first place. Most companies with fewer than 20 workers don’t provide health insurance, Langan says.

In addition, not all state mini COBRA laws are as comprehensive as the federal law.

Some states require companies only to provide extended coverage for three months. Others don’t give individuals who declined to enroll in COBRA when they were laid off a second chance to sign up. The federal law gives such individuals 60 days to re-enroll.

Several states are considering legislation to adopt or expand mini COBRA laws. For more information, contact your state’s insurance department. The National Association of Insurance Commissioners provides links to state insurance department websites at www.naic.org.

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