Impact on COBRA Provisions

On February 17, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA) (H.R. 1), otherwise known as the economic stimulus package. The legislation includes several provisions affecting employee benefits, in particularly a federal subsidy for COBRA continuation of coverage premiums, including for governmental health care plans and for a state COBRA extension for small employers.

The COBRA federal subsidy, which is 65% of the actual COBRA premium, applies to employees (and their covered family members) whose employment was/is involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009. The nine-month subsidy applies to COBRA premiums for coverage periods beginning on or after March 1, 2009, and does not expand the original otherwise applicable COBRA coverage period. For example, if the employee's original COBRA effective date was Oct. 1, 2008, the COBRA coverage would be available for up to 18 months from Oct. 1, 2008 (through March 2010), even if the COBRA enrollee first elects COBRA coverage effective from March 1, 2009. The subsidy does not apply to flexible spending accounts.

The subsidy is available only for individuals with annual income up to $145,000 and couples with annual income up to $290,000, but it is phased out beginning at annual income of $125,000 for individuals and $250,000 for couples. If the plan sponsor allows, a qualified COBRA beneficiary may elect another COBRA option different than the one that the individual was enrolled in at the time of the termination and the beneficiary has 90 days from the date of notification to make the coverage election.

With the subsidy, qualified COBRA beneficiaries will pay the plan administrator or insurer the beneficiary's 35% share of the COBRA premium and the plan sponsor will pay the 65% premium balance. The federal government then will reimburse the employer for the 65% subsidy through a credit against the employer's federal payroll taxes, including income tax withholding for employees. The employer, in turn, must file a report with the claim for the credit, including attestations of employees' involuntary terminations, an offset calculation, estimated offsets for the next reporting period, taxpayer identification numbers of covered employees, the amount of subsidy per individual, and whether the subsidy is for individual or family coverage.

This new federal COBRA subsidy adds responsibilities for employers/plan sponsors, including the following: identifying employees and dependents who qualify for the subsidy, whether or not they elected to continue COBRA when first offered; notifying these former employees and dependents of this new option, and that they have a new COBRA enrollment period beginning with February 17 and ending 60 days after notification for coverage beginning March 1; and providing them with the necessary forms to establish eligibility for the subsidy. The notice must be provided within 60 days after February 17 and must be incorporated into the COBRA notice during the subsidy period.

Furthermore, plan sponsors must notify subsidy-eligible employees and dependents of the individual's responsibility to notify the plan sponsor or administrator when the individual becomes eligible for Medicare or another group health plan. Individuals who fail to notify the plan sponsor or administrator when they become eligible for other group health coverage will face penalties. The Department of Labor will develop model notices that plan sponsors may use to comply with these new notification requirements. DOL, the Treasury Department, and the Department of Health and Human Services will issue applicable regulations.

Steven M. Bulloff, J.D., FLMI, CEBS

Chief Compliance Officer

G & W Equity Sales, Inc.

Vice President & General Counsel