The American Recovery and Reinvestment Act, just signed by President Obama has a new subsidy for certain COBRA beneficiaries. The subsidy is 65% of the COBRA continuation coverage premiums for eligible individuals up to 9 months. The period expires on the earlier of :
- 9 months
- the date the individual becomes eligible for major medical group coverage or Medicare
The subsidy is available to individuals who were involuntarily terminated only & became eligible for COBRA beginning September 1, 2008 through December 31, 2009. Employers must notify all former employees - whether they elected Cobra, or refused, about the new subsidy and premium arrangement. Qualified beneficiaries will be entitled to 9 months of future coverage at a 35% premium contribution level. The employer should implement the new premium contribution scheme as soon as adminstratively feasible.
In order to be eligible an employee's individual income is less than $125,000 per year or your family income is less than $250,000 per year.
Employers will pay the 65% of the premium for these qualifying COBRA participants and will be reimbursed by taking a credit against their payroll taxes. This will be recorded when filing the quarterly return.
This is a interesting change. Many employers pay less than 65% of the premium. In fact, for those employers paying 50/50, this new subsidy will make the actual cost for those COBRA eligible, only 35% of the premium, while active employees will be paying 50% of the premium.
Make sense?
What Should You Do as an employer?
Obviously, March 1 is right here and it may not be possible for employers to properly notify all of the "cobra eligibles".
We recommend by the end of this week to identify all employees who were eligible for Cobra and met the income requirements. By next week we hope to have a "Sample notification letter" for these individuals.
