Today, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the "Act"), which includes, among other items, significant changes to the COBRA continuation coverage rules. A copy of the pertinent provisions of the Act relating to COBRA and the committee reports explaining the provisions is available as a PDF - click the "Download PDF" link to the left to read more.
The Act provides a subsidy for COBRA continuation coverage and imposes a number of requirements on employers, plan administrators, and insurers. Below is a brief summary of some of the Act’s requirements, along with an action item list for employers. This summary is in very general terms, and so the actual legislative text and committee reports should be consulted for details.
Subsidy Amount. In general, the Act provides a federal government (taxpayer-funded) subsidy in the amount of 65% of COBRA premium costs for an individual (and any qualified beneficiary of such individual) involuntarily terminated between September 1, 2008 and December 31, 2009 other than for gross misconduct. Accordingly, for the subsidy period, a plan must treat an individual who has paid 35% of the premium due for coverage as having paid the full premium.
Subsidy Duration. The subsidy is to apply to periods of COBRA continuation coverage beginning after the enactment of the Act. For group health plans using calendar months as the period for which COBRA premiums are changed, the subsidy applies beginning March 1, 2009.
An individual’s eligibility for the subsidy terminates with the first month beginning on or after the earlier of (1) the date which is nine (9) months after the first day of the first month that the subsidy applies; (2) the date following the expiration of the maximum period of continuation coverage for the qualified beneficiary under applicable COBRA continuation provision; or (3) the first date that such individual is eligible for coverage under any other group health plan (other than coverage consisting only of dental, vision, counseling or referral services, coverage under a health reimbursement arrangement or health flexible spending arrangement, or coverage of treatment that is furnished in an on-site medical facility maintained by the employer and that consists primarily of first-aid services, prevention and wellness care, or similar care) or is eligible for Medicare benefits.
Subsidy Mechanics. Although described as a subsidy, the employer (for plans subject to the federal COBRA law and/or self-insured plans) or insurers (for insured plans not subject to the federal COBRA law) will be required to pay the remaining 65% of the premium amount initially, but will be reimbursed by treating the amount that is to be reimbursed as a credit against the entity’s liability for payroll taxes owed for its employees. The credit is applied as though the employer or insurer had submitted the equivalent amount of payroll tax on the date the qualified beneficiary’s payment is received. If the credit against employment taxes is insufficient to recover the full premium subsidy, the employer will qualify for a direct payment from the federal government.
Special Election Period. The subsidy provision also provides a special 60-day election period for a qualified beneficiary who is eligible for a subsidy and who has not elected COBRA continuation coverage as of the date of enactment. A notice regarding this special election period must be given to these individuals within 60 days of the Act’s enactment (or by mid-April), along with any forms necessary for them to establish their eligibility for the premium subsidy. The 60-day election period begins on the date that notice of the special election period is provided to the qualified beneficiary. Note, however, that this election period will not extend the period of COBRA continuation coverage beyond the original maximum required period and any COBRA continuation coverage elected pursuant to this special election period need only take effect as of March 1, 2009 and does not include any period prior to that date.
Notice Obligations. Because this subsidy takes effect as early as March 1, 2009, COBRA election notices should be promptly revised to refer to the subsidy’s availability, as well as certain additional information required by the Act. Employers may choose to revise their current notices or include the new information as a separate notice. The agencies responsible for COBRA enforcement are to draft model notices within 30 days after the Act becomes law (or by mid-March). Notices with the additional information must be sent to any person who becomes a qualified beneficiary during the period beginning September 1, 2008 and ending December 31, 2009.
Income Limitation. Any employee with an adjusted gross income of more than $145,000 (or $290,000, if married filing jointly) is not eligible for the subsidy. The subsidy is reduced for years in which gross income exceeds $125,000 (or $250,000 for joint returns). Any premium subsidy received by a “high-income individual” will be recaptured through additional income taxes, unless such individual permanently waives the subsidy in the manner to be prescribed by the Secretary of the Treasury.
Action Items for Employers.
- Take all necessary actions to provide the 65% subsidy to eligible individuals beginning March 1, 2009. This generally means ensuring that an eligible individual is only required to pay the 35% COBRA premium for periods of coverage beginning on or after March 1, 2009.
- Revise current COBRA election notice for any individual who becomes a COBRA qualified beneficiary after the enactment of the Act, to include additional information about the availability of the subsidy.
- By April 18, 2009, provide special notices to the following groups of eligible individuals:
- Eligible individuals who currently have COBRA continuation coverage to advise them of the availability of the subsidy and the requirements to qualify for the subsidy; and
- Eligible individuals who are entitled to the special enrollment period (i.e., those who were involuntarily terminated on or after September 1, 2008 who did not elect COBRA continuation coverage or who elected COBRA continuation coverage but whose COBRA coverage ended before the enactment of the Act because of non-payment of premiums) to advise them of the availability of the subsidy, the requirements to qualify for the subsidy and additional information required by the Act, as well as COBRA election forms.
For more information on the Act, taking the required actions, or establishing new COBRA procedures please contact us.
