COBRA PREMIUM ASSISTANCE UNDER
THE
AMERICAN RECOVERY AND REINVESTMENT ACT OF
2009
In
an effort to stimulate the U.S. economy, the
American Recovery and Reinvestment Act of 2009
(the "Act") was signed into law on February 17,
2009. The Act includes provisions that
expand the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") by providing
federal assistance for the payment of COBRA
continuation coverage for certain employees and
covered family members.
Any
employer subject to COBRA that sponsors a group
health plan for its employees, and has terminated
or laid off an employee on or after September 1,
2008, will be affected by the Act and needs to
take immediate action to comply with these new
provisions which become effective March
1, 2009.
WHAT COBRA
PREMIUM ASSISTANCE IS
PROVIDED?
Under the Act, if an eligible individual is
involuntarily terminated from employment
(for reasons other than gross misconduct) between
September 1, 2008 and December 31, 2009, and does
not have income in excess of statutory limits, the
individual may elect COBRA coverage and will be
responsible for paying only 35% of the applicable
COBRA premium. The employer pays the
remaining 65% of the premium. The Employer
can then recoup its 65% share from the federal
government.
In
addition to the COBRA premium assistance, an
employer may also choose to allow such
involuntarily terminated individuals to
elect a different, lower cost plan option, if
available, upon election of COBRA continuation
coverage.
HOW LONG
DOES THE COBRA PREMIUM ASSISTANCE
LAST?
Generally, the COBRA premium assistance is
available for a maximum of 9 months.
Additionally, the COBRA premium assistance will
cease following the date an eligible individual
becomes eligible for: (1) coverage under any
other group health plan (other than one consisting
only of dental, vision, counseling or referral
services), (2) coverage under a health flexible
spending account plan, (3) coverage of treatment
at certain employer on-site facilities, or (4)
coverage under Medicare or Medicaid.
WHO IS
ELIGIBLE TO RECEIVE COBRA PREMIUM
ASSISTANCE?
To
be eligible for the COBRA premium assistance, an
individual must be involuntarily
terminated, or must have been involuntarily
terminated, from his or her employer during the
period starting September 1, 2008 and ending on
December 31, 2009, and otherwise must be eligible
to elect COBRA at termination. Qualifying
dependents of involuntarily terminated employees
are also be eligible for COBRA premium
assistance.
However, individuals with an annual
adjusted gross income exceeding $145,000 per year,
and joint filers with income exceeding $290,000
per year, are not eligible for the COBRA premium
assistance. Also, COBRA premium assistance
is phased out starting at $125,000 for
individuals, and $250,000 for joint filers.
Individuals who receive COBRA premium assistance
during a year in which they exceed these income
limits must repay the assistance. Such
repayments will be captured on the individual's
income tax return.
SPECIAL
ELECTION PERIOD FOR COBRA PREMIUM
ASSISTANCE.
Congress realizes that many individuals who
were recently terminated may have declined COBRA
coverage because they could not afford it.
Therefore, the Act includes a special election
period for any individuals who were involuntary
terminated from employment on or after
September 1, 2008 and who failed to initially
elect COBRA. Employers must offer these
individuals a 60 day period to elect COBRA and
receive the premium assistance beginning on the
date they receive notice of their rights to make
the second election. Notices of the special
election period must be distributed to employees
no later than April 18, 2009 (60 days after
enactment of the Act).
WHAT ABOUT
INDIVIDUALS WHO HAVE ALREADY ELECTED COBRA
COVERAGE AND ARE PAYING FULL COBRA
PREMIUMS?
Individuals who were involuntarily
terminated and elected COBRA on or after
September 1, 2008, are entitled to the COBRA
premium assistance and, must receive a notice of
their right to COBRA premium
assistance.
For
any such individual who is paying more than 35% of
the COBRA premium, the employer shall reimburse
the individual, or otherwise provide a credit
towards future COBRA premium payments, in the
amount of any excess payment.
NOTICE
REQUIREMENTS
The
Act requires employers to modify their existing
COBRA notices, or provide separate notices to all
individuals who become eligible to elect COBRA
coverage between September 1, 2008 and December
31, 2009. Such notices must include the
following:
- Notification of
the availability of the COBRA premium
assistance;
- Notification of
the option to enroll in different health care
coverage offered by the employer, if
any;
- Description of
the forms necessary for establishing eligibility
for the COBRA premium assistance;
- The name,
address, and telephone number necessary to
contact the plan administrator and any other
person maintaining the relevant information in
connection with the COBRA premium
assistance;
- A description of
the special election period;
- A description of
the individual's obligation to notify the plan
if they no longer qualify for the premium
assistance; and
- A description,
displayed in a prominent manner, of the
individual's right to a reduced premium and any
conditions on entitlement to the reduced
premium.
The
Act requires the Department of Labor, the IRS and
the Department of Health and Human Services to
work together to develop and issue a model notice,
and we anticipate such notice will be available
within the next 30 days.
HOW DOES AN EMPLOYER RECEIVE
REIMBURSEMENT FROM THE FEDERAL
GOVERNMENT?
An
employer (and in some instances, an insurer) is
entitled to apply the amount of premium assistance
it pays as an offset against its payroll
taxes. To claim this offset, the employer
must file a report with Internal Revenue Service
("IRS") that includes the following:
- Attestation of
involuntary termination of employment for each
covered employee;
- A report of the
amount of payroll taxes offset for the
applicable payroll tax reporting period and the
estimated offset of payroll taxes for the
subsequent period; and
- A report
containing the tax identification numbers of all
covered employees, the amount of the subsidy
reimbursed to each employee and covered family
member, and a designation with respect to each
employee as to whether the subsidy reimbursement
is for coverage for one individual or two or
more.
If
the premium assistance paid by the employer
exceeds the employer's payroll taxes, the employer
will be entitled to a refund from the government.
WHAT
SHOULD EMPLOYERS DO NOW?
Employers need to immediately address the
changes necessary to accommodate these new COBRA
rules. In general, employer and/or plan
administrators should do the
following:
- Identify
involuntarily terminated individuals, and their
eligible dependents, who were eligible for COBRA
on or after September 1, 2008.
- Revise and update
all COBRA communications, including creating a
notice for those terminated employees who are
immediately entitled to the special enrollment
period discussed above.
- Notify eligible
individuals no later than April 18, 2009 of
their special election period and of the
availability of the COBRA premium
assistance.
- Determine whether
to allow the former employee to switch to
alternative health coverage for COBRA
purposes.
- Coordinate with
your payroll and systems staff
personnel/provider to revise procedures for (1)
paying the employers 65% share of the COBRA
premiums, (2) revising premium statement to
reflect new premium amounts, (3) obtaining
reimbursement of employer paid amounts from the
federal government, (4) determining and
crediting any COBRA premium overpayments for
those individuals who previously elected COBRA
on or after September 1, 2008 and are currently
paying the full premium amount, and (5) ending
the COBRA premium assistance when an individual
is no longer eligible and reinstating the 100%
COBRA premium charge if the individual continues
to be eligible for COBRA coverage after the
COBRA premium assistance period.
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