Greetings,

 

The Recovery Act provides a special subsidy to help laid-off workers pay for COBRA coverage.  While employers are not required to share in the subsidy, they are subject to certain administrative requirements.  In a Fact Sheet and two sets of FAQs, the U.S. Department of Labor (DOL) has spelled out additional details of how the limited-time COBRA subsidy will work for involuntarily terminated workers. The details relate to who is eligible for the subsidy, how long it lasts, a special grace period for COBRA enrollment, and the effect of switching COBRA coverage on the subsidy.
 
What is the COBRA subsidy? Under the COBRA subsidy, an "assistance eligible individual" pays 35% of the COBRA continuation premium and the federal government pays the 65% balance. An assistance eligible individual is the employee or a member of the employee's family who:
 
... is eligible for COBRA continuation coverage at any time between Sept. 1, 2008 and Dec. 31, 2009;
 
... elects COBRA coverage; and
 
... is eligible for COBRA as a result of the employee's involuntary termination between Sept. 1, 2008 and Dec. 31, 2009.
 
An individual eligible for other group health coverage (such as a spouse's plan) or Medicare is not eligible for the premium reduction. There is no premium reduction for premiums paid for periods of coverage prior to Feb. 17, 2009.
 
How long does the subsidy last? The COBRA continuation subsidy applies to periods of coverage beginning after Feb. 16, 2009. The premium reduction starts on Mar. 1, 2009 for plans that charge for COBRA coverage on a calendar month basis. The premium reduction ends when: the individual becomes eligible for other group coverage (or Medicare), after 9 months of the reduction, or when the maximum period of COBRA coverage ends, whichever occurs first.  For most workers, this means the subsidy continues for 9 months or until the worker finds a job with health coverage.
 
An assistance eligible individual who was eligible for the premium reduction but already paid in full for periods of COBRA coverage beginning after Feb. 16, 2009, should contact the plan administrator or employer sponsoring the plan to discuss a credit against future payments (or refund in certain circumstances).
 
An individual who ceases to become eligible for the subsidy because of eligibility for coverage under another group health plan or Medicare must notify the group health plan providing the subsidized COBRA coverage.
 
Grace period for COBRA continuation enrollment. Individuals involuntarily terminated from Sept. 1, 2008 through Feb. 16, 2009, who (1) did not elect COBRA when it was first offered or (2) did elect COBRA, but are no longer enrolled (e.g., because they couldn't pay the premium) are given a special grace period for electing COBRA coverage. This election period begins on Feb. 17, 2009 and ends 60 days after the plan provides the required notice. The DOL Fact Sheet says the special grace period "does not apply to coverage sponsored by employers with less than 20 employees that is subject to State law."
 
Employers Take Note:  Plans must notify individuals of this special grace period by April 18, 2009.

 

 

 

 

About the Writer
 
Desmond G. Sheridan is a partner in the Greensboro law firm of Isaacson Isaacson Sheridan & Fountain, LLP and is a certified public accountant.  His practice areas are business transactions, tax, corporations, limited liability companies, commercial real estate and estate planning.  Sheridan has served on the Board of Directors of the North Carolina Association of Certified Public Accountants and has been recognized as a North Carolina "Super Lawyer" and a member of the "Legal Elite" by Business North Carolina.  He has given numerous continuing education presentations to CPAs and attorneys.