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March 2009
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA), which, among other things, provides for a nine (9) month subsidy of COBRA premiums for employees who are involuntarily terminated. The law also subjects employers to additional administrative and notice requirements.
As you know, COBRA is a federal law that provides former employees and eligible dependents the right to retain their health insurance coverage, generally up to 18 months, after losing their job. The former employee and/or dependent must pay the full premium, which can be very expensive. Under the recently enacted ARRA, eligible former employees and their dependents, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35% of the cost of COBRA coverage. Employers must treat the 35% payment by eligible former employees as full payment, but the employer is entitled to a credit for the other 65% of the COBRA cost on their payroll tax return. The employer must maintain supporting documentation for the credit claimed. The eligible former employee and their dependents are entitled to the 65% COBRA health insurance premium subsidy for up to 9 months. Even if your company does not have to comply with the federal COBRA law because it has fewer than 20 employees, it must comply with the COBRA subsidy if it is covered by a COBRA-type State Continuation law.
Under the subsidy program the federal government will help pay for the COBRA benefit of any individual who is involuntarily terminated between September 1, 2008 and December 31, 2009 and whose income in the year of the subsidy does not exceed $125,000 for an individual or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify.
The ARRA provides eligible individuals a special 60-day period to elect subsidized COBRA continuation coverage. Notice of this right must be sent to otherwise-eligible individuals no later than April 18, 2009, even if they declined COBRA coverage in the past. This notice may be supplied via a modified COBRA notice or in a separate document. The Secretary of Labor is charged with issuing form notices for this purpose by March 17, 2009 and as soon as the forms are available we will forward a copy to you.
This special 60-day election period starts the day the eligible individual is provided notice regarding the availability of the COBRA subsidy. If an eligible individual who terminates prior to March 1, 2009 elects. COBRA coverage after receiving the special 60-day election notice, then coverage begins on March 1, 2009, not on the date of the individual’s qualifying event. The extended election period does not extend the period of COBRA continuation coverage beyond what would have been available if COBRA had been initially elected. If an employee was laid off after September 1, 2008 and declined COBRA coverage, the employer must give that employee another chance to elect coverage. Businesses must notify all COBRA-eligible individuals of the subsidy and ordinary COBRA benefits.
We will continue, in the weeks ahead, to help our clients implement this crucial change. Any additional information we obtain regarding the details will be forwarded to you. In the meantime, if you have any questions or concerns please contact us.
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