President Obama signed the American Recovery and Reinvestment Act (ARRA) into law on February 17, 2009. The $787 billion economic stimulus package expands current COBRA rules creating a nine month 65% federal COBRA premium subsidy for employees who were involuntarily terminated between September 1, 2008 and December 31, 2009. This new legislation requires employers and plan administrators to issue new COBRA notifications, provide new extended enrollment opportunities and implement subsidy procedures promptly.
ELIGIBILITY REQUIREMENTS
The subsidized COBRA benefits are available to workers (and their families) who have lost or will lose health care coverage because of an involuntary termination of employment (excluding a termination for gross misconduct) occuring between September 1, 2008 and December 31, 2009. The full 65% subsidy is available to individuals with modified adjusted gross incomes of up to $125,000 ($250,000 for joint filers). A proportionally reduced subsidy is available for individuals with modified adjusted gross incomes between $125,000 and $145,000 ($250,000 and $290,000 for joint filers).
Note: The term "involuntary termination" is not defined in the Act. We will provide additional guidance on this as more information becomes available.
COBRA SUBSIDY
The 65% premium subsidy will last for up to nine months and applies to premiums paid for periods of coverage beginning on or after March 1, 2009. The subsidy ends once an individual becomes eligible for coverage under another group health plan, Medicare, or is otherwise no longer eligible for COBRA. Individuals must notify the plan when they are no longer eligible for the subsidy due to eligibility for another group health plan, or face financial penalties of up to 110% of the subsidy.
The subsidy is structured as a premium reduction, requiring individuals to pay 35% of premiums; employers will receive a credit against wage withholding and FICA payroll tax obligations for the remaining 65% by filing a report with the federal govermnent. If the subsidy exceeds the payroll tax obligation, overpayments will be refunded or credited to the employer.
NEW ENROLLMENT OPPORTUNITY - SPECIAL ELECTION PERIOD
Individuals who were involuntarily terminated on or after September 1, 2008 and initially declined COBRA coverage, those who did not make timely COBRA elections, or those who allowed COBRA coverage to lapse, are provided an extended opportunity to elect (or re-elect) COBRA. If they choose to enroll, their COBRA coverage and the subsidy will take effect on March 1, 2009; however, their maximum COBRA period will end when the COBRA coverage would have otherwise ended if the individual had elected COBRA when initially eligible.
OPTIONAL NEW COBRA COVERAGE OPTION
Employers may, at their option, allow individuals eligible for the subsidy to elect a different COBRA medical coverage option from what they were enrolled in upon termination of employment. The new premium for such coverage cannot be greater than the premium for the option in which the individual was enrolled in at the time the COBRA qualifying event occurred.
NEW NOTIFICATIONS
Individuals who experience a COBRA qualifying event during the period beginning September 1, 2008 and ending December 31, 2009 must be notified of the availability of the premium subsidy and, if applicable, of the choice of new coverage options. This new information will become part of the standard COBRA notice for qualifying events for the duration of the subsidy. Under the Act, specified government agencies are directed to develop model notices for this purpose within 30 days of enactment.
The Act requires employers and plan administrators to take prompt action to implement the new COBRA provisions. This Employer Alert summarizes key provisions of the Act at this time. We will report more information as the provisions are clarified in the coming weeks. In the interim, the Sullivan Benefits team is available to assist you in understanding and implementing these new provisions.
Sullivan Benefits clients receive COBRA administration services at no additional cost. Whether you currently utilize this service or not, please note we have been working on system modification changes since mid-January with our software vendor, Travis Systems. Currently the modifications are being tested and we expect to receive the updates shortly. New model notices, forms, etc. will be availble to you at that time.
