By CANDICE CHOI

AP Personal Finance Writer



NEW YORK (AP) — It's a cruel consequence of being laid off. Just when the paychecks stop, the cost of health insurance surges.

Now, as the ranks of the unemployed multiply, the federal government is providing unprecedented relief. A few final details are still being worked out, but those who were laid off since last fall may be eligible for a 65 percent subsidy to pay for COBRA — which lets people extend employer-sponsored health insurance after leaving a job.

For Mallory Dash, it will bring down her payments to $180 a month, instead of the $515 she's been paying since being laid off from a public relations firm in November. Her weekly $300 unemployment check barely covers her rent, so the help is desperately needed.

"I've had to borrow from my parents. I'm just too paranoid to not have health insurance," said Dash, a 22-year-old resident of Hoboken, N.J.

While COBRA was intended to give people access to health insurance after leaving a job, the cost is often prohibitive. That's because employers no longer pick up a share of the cost, which averages around 80 percent.

The subsidy will help ease the burden for Dash, but she remains at sea about when she'll see the lower rates kick in. Her confusion is understandable; even the IRS is still working out some details on how it will work.

It's a messy topic more people will soon face, with the unemployment rate expected to edge into double-digit territory by year's end. The national average is already at a 25-year high of 8.1 percent.

Here's what you need to know about the new COBRA rules.

WHO'S ELIGIBLE?

Most people who leave their jobs can extend their health insurance through COBRA, or the Consolidated Omnibus Budget Reconciliation Act of 1985. The law applies to people who were enrolled in group insurance plans at companies with at least 20 people.

The 65-percent subsidy is available to those who lost their jobs between Sept. 1, 2008 to the end of this year.

People have 60 days after being laid off to enroll in COBRA. One plus is that the subsidy gives people who missed their deadline a second chance to sign up. The new election period will end 60 days after people are notified about their eligibility for the subsidy. Notifications should come within the next several weeks, if they haven't already.

You don't qualify for the subsidy if you quit your job or were fired for misconduct.

What's not yet clear is whether people who took a buyout or early retirement to avoid a layoff will be eligible.

"There's a lot of scrambling right now with a lot of big question marks," said Kelly Traw, of the business consulting firm Mercer in Washington, D.C. "Everyone's working in a vacuum about how to handle this."

HOW MUCH HELP DO I GET?

On average, the monthly cost of COBRA is around $400 for an individual and $1,000 for a family, according to the Kaiser Family Foundation, a health policy research group based in Washington, D.C.

The price is often a major barrier, since it comes at a time when people are no longer earning a paycheck, said Karyn Schwartz, a senior policy analyst for Kaiser.

"That may change now with the subsidy," she said.

While the subsidy lowers the cost to 35 percent of the premium, that's still more than twice the average of 16 percent people typically pay while employed, according to the Kaiser Foundation.

If you paid full price for COBRA this month because you haven't yet been notified of the subsidy, you're entitled to a reimbursement. The 65 percent subsidy became available Feb. 17.

There are a few strings attached if you earned between $125,000 and $145,000 for the year. If that's the case, you will have to pay back part of the subsidy in taxes, although the IRS hasn't yet nailed down an exact amount.

Those who earned $145,000 or more must pay the entire subsidy back in taxes.

HOW LONG DOES THE SUBSIDY LAST?

People are eligible to elect COBRA for up to 18 months. But the 65 percent subsidy only lasts for half as long.

There is another small break on paying for coverage.

Typically, if you wait a month after being laid off to enroll in COBRA, you still have to pay for retroactive coverage from when you left your job.

That's not the case with the new subsidy. You only need to pay for coverage going forward.

WHAT ELSE DO I NEED TO KNOW?

Some plan administrators may require a separate application for the subsidy. You should then start seeing reduced monthly bills.

It's important to note you can't sign up for the subsidy if you can get coverage under a family member's plan.

If you get a new job, you need to notify the plan administrator in writing about when you expect to get new coverage.

These days, it's not so unusual for a company to go under or stop offering health insurance to cut costs. If that's your situation, you won't be eligible for COBRA. The law applies to people whose former employers still offer coverage.

WHAT ARE MY OPTIONS BESIDES COBRA?

If COBRA is still too pricey, check what public programs are available in your state. Browse the state health department's Web site; it should have information about eligibility and enrollment on aid programs. If you need coverage for your entire family, your children may be eligible for certain programs even if you're not.

Another option is getting an individual plan on the private market, but be sure to read the fine print.

Once you sign up for an individual plan, switching can be messy, Schwartz said. If you're diagnosed with a serious medical condition and you don't like your coverage, she said other plans might refuse to take you on.

Individual plans often aren't as comprehensive as group plans, either. For instance, some don't cover maternity care or prescription drugs, so it's important to review the plan carefully.



Copyright 2009 The Associated Press.