On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (the “Act”), which is intended to provide stimulus to lead to an overall economic recovery. Under federal and state “COBRA” laws, employers must offer the option of continued health coverage at group rates to qualified employees and their families who are faced with losing health insurance coverage. The Act contains important changes to COBRA laws that require action by employers who offer group health plans. 

 

 

Beginning March 1, 2009, the Act provides a federal subsidy of 65 percent of the COBRA continuation coverage premiums for eligible individuals for up to 9 months, so that the individual must pay only 35 percent of the COBRA premium. Eligible individuals include employees involuntarily terminated from employment between September 1, 2008 and December 31, 2009 other than for gross misconduct, who are (or were) eligible for COBRA coverage under either federal or state law. Eligible individuals also include the terminated employees’ family members who are eligible to be covered under COBRA. The premium subsidy begins to phase out for individuals with adjusted gross income over $125,000 (for single filers) or $250,000 (for joint tax return filers). The subsidy terminates upon the earlier of 9 months or the first date that the individual becomes eligible for other group health plan coverage or Medicare. Employees involuntarily terminated since September 1, 2008 who previously declined COBRA coverage or who elected coverage and no longer have it must be notified by April 18, 2009 and given the right for 60 days to elect the new subsidized COBRA coverage on a prospective basis. Any previously terminated employee who elected and is still receiving COBRA will be eligible to pay the 35 percent subsidized premium rate beginning March 1, 2009. 

 

 

Generally under the Act, eligible terminated employees who elect COBRA coverage pay 35% of the COBRA premiums and the employer initially pays the other 65% of the COBRA premiums. The 65% portion paid by the employer is then reimbursed to the employer by the employer’s offset of that amount against current payroll taxes (income tax and FICA tax withholdings). The exception to this is for employers with fewer than 20 employees who have insured plans that are subject only to the New Hampshire COBRA law and not to the federal COBRA law. In these cases, the specifics for the administration of the 65% subsidy remain to be clarified by regulations, but it appears that the government will pay the 65% subsidy reimbursement directly to the insurer and the employer will not be required to advance 65% of the COBRA premiums. The Act requires employers or insurers claiming subsidy reimbursements to file certain reports verifying eligibility for the reimbursement, including an attestation of involuntary termination of employment of each covered employee for whom reimbursement of premiums is claimed. 

 

 

The Act provides that federal agencies, including the Department of Labor, the Internal Revenue Service, and the Department of Health and Human Services, will soon provide further guidance and forms regarding the new COBRA subsidy and related notice and reporting requirements. In the interim, employers should immediately begin taking the following compliance actions:

 

·        Review records to identify “eligible individuals” (i.e., employees involuntarily terminated from employment since September 1, 2008).

·        Develop procedures for the administration of the new subsidy including the payroll tax reimbursement process.

·        Prepare to provide notice by April 18, 2009 to eligible individuals who previously declined or lost COBRA coverage (and their COBRA-eligible family members) of their new right to elect and receive COBRA coverage at the subsidized rate.

·        Effective March 1, 2009, begin billing previously terminated eligible individuals who are current COBRA beneficiaries at the new 35 percent subsidized rate.

·        Update COBRA notices and other materials to comply with the new requirements as more guidance becomes available. 

This is a general summary of the provisions of the new Act which contains many more details and requirements. Employers should consult with their COBRA administrators and benefit advisers concerning compliance with the Act. Please contact your attorney at Cleveland, Waters and Bass, P.A. or David Law of our tax and employee benefits section with any questions regarding these new COBRA provisions or for more detailed information.