Client Alert - February 2009NEW COBRA CONTINUATION SUBSIDYBy Heather R. Baldwin Vlasuk and Patricia F. Weisberg On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 ("Act") into law. The Act made considerable changes to the Consolidated Omnibus Budget Reconciliation Act (COBRA) that may be costly for employers. Under the Act, eligible individuals electing COBRA coverage will be entitled to a 65% subsidy of their COBRA premiums, i.e., COBRA continuation assistance. Although the Act does not detail the process for administering this subsidy, the Act provides that the subsidy generally will be covered by the employer although the employer will be entitled to payroll tax credit or direct reimbursement. Employers must comply immediately with these new requirements. Below is a short summary of the Act’s COBRA provisions. COBRA Subsidy: Eligible individuals will receive a 65% subsidy toward their COBRA premium for up to nine months. The subsidy applies to medical, dental and vision benefits, but does not apply to medical flexible reimbursement accounts. The subsidy will terminate upon the offer of any new employer-sponsored healthcare coverage or Medicare eligibility, whichever occurs earlier. However, the individual will remain eligible for the COBRA subsidy if the new employer-sponsored healthcare coverage provides only dental, vision, counseling or referral services, is a health flexible spending account or reimbursement arrangement, or is coverage only for treatment at an on-site medical facility maintained by the employer for first-aid and/or prevention and wellness. COBRA continuation coverage, however, may continue beyond the date the subsidy ends. Employer Reimbursement: Employers or health plans administering COBRA benefits will receive a credit against payroll taxes for the cost of the subsidy. To the extent that the subsidy amount exceeds the entity’s liability for payroll tax, the Treasury Department will reimburse the entity directly. COBRA Continuation Eligibility: Individuals eligible for the COBRA continuation subsidy under the Act are those employees and dependants that lose group health plan coverage due to "involuntary termination" of the employee’s employment (unless such termination was a result of gross misconduct) between September 1, 2008 and December 31, 2009. Individuals who are entitled to COBRA because of another type of qualifying event such as divorce, reduction of hours, voluntary resignation, or attainment of a certain age are not eligible for the subsidy. Also, if the individual receiving COBRA continuation assistance has a modified adjusted gross income of over $125,000 (single) or $250,000 (joint filer) for 2009 or 2010, the individual must repay some or all of the amount of the subsidy, for all months during the taxable year, through a recapture tax. Eligible individuals may waive their right to the subsidy if they believe they will exceed the gross income threshold to avoid later repayment. Notice of COBRA Coverage: The Act provides that the notice of COBRA continuation coverage given to COBRA qualified beneficiaries contain additional information, including the individual’s right to premium subsidies. Under the Act, the Secretary of Labor is directed to provide model language for the additional notification within 30 days of enactment of the Act. The Special Election Period (Second Bite at the Apple): The Act provides a special 60-day election period for eligible individuals who have been involuntarily terminated on or after September 1, 2008 and who have already declined COBRA continuation coverage to now elect the coverage. Notice must be sent to those individuals within 60 days after enactment of the Act (February 17, 2009). The election period begins on the date of the enactment of the Act and ends 60 days after notice is provided to the eligible individual informing the individual of the available subsidy and allowing the individual to elect COBRA coverage. The special election does not extend the period of COBRA continuation coverage beyond the original maximum required period of coverage. Any COBRA continuation coverage elected pursuant to this special election begins on the first period of coverage following the date of enactment of the Act.
Additionally, any break in coverage due to an individual’s initial decline of COBRA coverage will not be considered a break in service for purposes of coverage for a pre-existing condition. Special Enrollment: Under the Act, an eligible individual can elect a lesser amount of coverage if it is offered by the employer, so long as the change of plans is made within 90 days of receiving the COBRA continuation notice and the employer permits the change. In other words, if the employer offers one or more other health plans with a lower premium cost, the COBRA eligible individual can elect that plan instead. Notice of alternative plan options must be given to eligible employees. Individuals Already Paying Full COBRA Premium: Subsidy eligible individuals who have been paying COBRA premiums above the 35% provided for under the Act since September 1, 2008, are entitled to a partial premium reimbursement from the employer or, in some circumstances, a credit against future COBRA payments. What Employers Need To Do Now: As the Act has now been signed into law, employers need to act immediately. Employers should do the following:
If you have questions regarding the COBRA provisions of the American Recovery and Reinvestment Act of 2009, please feel free to contact one of the Labor and Employment Group attorneys at Walter & Haverfield, LLP. WALTER & HAVERFIELD LLP The information in this Client Advisory is a summary of often complex legal issues and may not cover all of the "fine points" of a specific situation or court jurisdiction. Accordingly, it is not intended to be legal advice, which should always be obtained in consultation with an attorney. |
