COBRA Continuation Coverage Assistance Under the American Recovery and Reinvestment Act (ARRA) of 2009
By Dan Exceen & Patti Kunnel, Burnham Benefits (www.BurnhamBenefits.com)
The American Recovery and Reinvestment Act of 2009, provides for a provisional nine month subsidy of COBRA premiums for employees and their dependents who were involuntarily terminated between September 1, 2008 and December 31, 2009. This law subjects employers to new administrative and notice requirements.
- Beginning March 1, 2009, a nine month COBRA subsidy assistance will be available to eligible individuals to reduce their applicable COBRA premium to 35% under their prior employer's health plan.
- The employer will pay the remaining 65% of the premium, and will be reimbursed for its portion by taking a credit against its current payroll taxes to the Federal government. The subsidy split is based on the current COBRA premium which includes 2% for administrative fees.
- An individual's eligibility for the subsidy will terminate the earlier of a) eligible for another group health plan or Medicare; b) at the end of nine months or c) end of maximum required period of COBRA coverage. If the COBRA participant no longer qualifies for the subsidy they must notify their former employer or be subject to a penalty of 110%. High income individuals are permitted to waive the subsidy to avoid tax penalties.
- State laws that provide continuation coverage (i.e. Cal-COBRA) will also need to comply.
- After the nine month COBRA assistance subsidy, the current COBRA premiums will apply.
- COBRA subsidy eligible individuals may elect a different COBRA benefit option if the employer offers a health plan with the same or lower premium for a plan that is also available to active employees.
Employer Notice Requirement
Employers need to modify their current COBRA election notices to eligible individuals:
- Current COBRA Participants-The notices must provide specific information regarding the special 60 day period for the participant to elect subsidized COBRA coverage, and clarify the new COBRA eligibility period from the original COBRA qualifying date (A new DOL model notice will be available within 30 days).
- All Qualified Beneficiaries-Eligible participants who did not elect COBRA coverage and were eligible September 1, 2008 through March 1, 2009, must also be notified of the special 60 day election period. Eligible qualified beneficiaries will now have a new COBRA election period. If the COBRA subsidy is elected, subsidized coverage will be effective March 1, 2009 and will not be based on original loss of coverage date.
- Deadline- Updated notices must be sent to eligible individuals no later than April 18, 2009. Failure to provide these notices are subject to $110 per day penalty under ERISA.
Next Steps for Employers
- Compile a list of all subsidized COBRA eligible individuals who were involuntarily terminated on or after September 1, 2008 and their qualified dependents who were enrolled in coverage prior to the termination.
- Revise payroll systems to identify applicable subsidized COBRA premiums in order to recoup the employer tax credit. The employer is reimbursed by treating the expense as a liability against payroll taxes.
Source: The Internal Revenue Services: United States Department of the Treasury, http://www.irs.gov/. United States Department of Labor, http://www.dol.gov/ebsa/COBRA.html.
Burnham Benefits will continue to monitor this legislation and report details as released.
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