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COBRA Changes Arising from the Economic Stimulus Bill

President Obama yesterday signed into law the American Recovery and Reinvestment Act of 2009 (Act) which, among other provisions intended as economic stimulus, provides federal assistance to workers who lose their jobs to help them maintain their group health coverage.  The Act contains a COBRA subsidy which is expected to increase the number of qualified beneficiaries electing COBRA continuation coverage and send administrators scrambling to comply with the special notice and enrollment requirements.

The Act modifies requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), affecting how COBRA continuation coverage is offered to workers who lose group health plan coverage due to an involuntary termination of employment or reduction of hours during the period beginning September 1, 2008 and ending December 31, 2009.  These changes under the Act apply to group health plan coverage under both federal COBRA law and to any state “mini-COBRA” laws (i.e., state health coverage continuation laws applicable to insurance plans covering employers with fewer than 20 employees).

The Act imposes a number of requirements on employers, administrators and insurers:

  • COBRA Subsidy.  The Act provides a 65 percent subsidy for COBRA continuation premiums for up to nine months of continuation coverage for workers (and their dependents) who involuntarily lose their jobs or have their hours reduced during the applicable period.  The Act does not specify how to determine whether a termination (or reduction) is involuntary.  Employers sponsoring group health plans are required to pay 65 percent of the COBRA premium amount up front but are entitled to a refundable credit toward payroll taxes.  (This refundable credit only applies to employer-paid COBRA continuation premiums that arise by reason of the Act.  COBRA notices, communications and severance agreements should be carefully worded to ensure that employers may claim the refundable credit if desired.)  The worker only would pay 35 percent of the COBRA premium for continuation coverage.  Furthermore, workers who involuntarily were terminated between September 1, 2008 and enactment, but failed initially to elect COBRA, must be given an additional 60 days after enactment to elect COBRA and receive the subsidy.  The subsidy, however, begins to phase out for individuals with annual adjusted gross incomes exceeding $125,000 a year ($250,000 for joint returns), and is phased out entirely at $145,000 ($290,000 for joint returns).  The subsidy will terminate upon offer of any new employer-sponsored group health plan coverage or Medicare eligibility.  Such subsequent coverage, however, does not include coverage under a flexible spending account, health savings account, health reimbursement arrangement, dental plan, vision plan, or onsite clinic.
  • COBRA Enrollment & Notice Requirements.  The Act requires Employers to offer an additional COBRA election period to any qualified beneficiary who became entitled to COBRA coverage on or after September 1, 2008 and who would be eligible for a COBRA subsidy if such person were enrolled in COBRA coverage as of the date of enactment.  This election period must be offered both to workers who originally declined COBRA coverage and to those who elected and subsequently terminated such coverage.  Workers receiving notice of this election period have 60 days to opt for the subsidized continuation coverage.  COBRA election notices must contain specific information about the subsidy. Government agencies are directed to issue a model notice within 30 days of enactment.  If a qualified beneficiary becomes eligible for subsequent coverage under another group health plan or Medicare during the subsidy period, the qualified beneficiary must provide notice of such eligibility to the plan, or otherwise face liability for 110 percent of the improperly paid subsidy. 
  • Employer Filing Requirements.  The Act imposes three reporting requirements relating to the COBRA subsidy: (i) reports attesting that each worker receiving the subsidy was involuntarily terminated; (ii) reports accounting for the payroll tax credit taken for the reporting period and the estimated credits to be taken during the next reporting period; and (iii) reports reflecting all workers covered by the subsidy, the amount treated as a payroll tax credit for each worker and whether the subsidy covers one or more individuals.

If you have any questions regarding COBRA issues arising from the economic stimulus bill, please contact a member of Greenebaum’s Employee Benefits Team.


 

Even though the content of the above Greenebaum Doll & McDonald e-bulletin is primarily informative, state and federal law obligates us to inform you that this is an advertisement. You have received this advisory because you are a client or friend of the firm.

 
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About Greenebaum Doll & McDonald PLLC
Greenebaum Doll & McDonald PLLC is a widely-respected business law firm with approximately 200 legal professionals in six offices, serving local, national and international clients in virtually every industry. A forward-thinking business law firm, Greenebaum is committed to the practice of Breakthrough Law®. For more information, visit www.greenebaum.com.

 

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