The Federal Government “Stimulus Bill” – formally known as
the American Recovery and Reinvestment Act (ARRA) - was signed by
President Obama on February 17, 2009. Provisions (relatively) quietly
included in this legislation enact important changes in the
administration of COBRA benefits, by making a Federal subsidy
available to employees involuntarily terminated after September 1,
2008 should they choose to continue their employer sponsored medical
benefits.
Significant COBRA subsidy-related features of the new regulations
include:
Eligibility
- In line with existing COBRA regulations, ARRA affects all
employers with 20 or more employees. Plans in states with expanded
COBRA coverage eligibility definitions will be required to comply
as well.
- Subsidy-eligible individuals include employees involuntarily
terminated from employment after September 1, 2008 and prior to
December 31, 2009, along with their covered dependents. The
subsidy may not available to individuals with a modified gross
income of $125,000 or $250,000 if tax returns are filed jointly.
It is the individual’s, not the employer’s, responsibility to
account for the subsidy on their personal taxes. The subsidy is
also not available to those that have other group health coverage
available (through a spouse’s plan) or Medicare.
Subsidy Guidelines
- For current and future COBRA beneficiaries enrolled in employer
sponsored healthcare plans, a 65% premium subsidy from the Federal
Government becomes immediately available for up to 9 months, or
through the date the individuals become eligible for other group
healthcare coverage or Medicare if less. From a practical
standpoint, this means the COBRA participant is responsible for
35% of the COBRA monthly premiums as of March 1, 2009. The
Department of Labor is in the process of developing a revised
COBRA Notice template to be sent to current COBRA beneficiaries,
targeted for release by mid-March. We recommend having COBRA
participants continue paying the full monthly premium amounts
until eligibility for the subsidy can be confirmed. Retroactive
credits should then be applied to future premium payments or a
refund provided if future premium payments cease.
- For those former employees who initially declined COBRA
coverage, a Special Enrollment period is to be provided allowing
enrollment into the prior employer’s plan. This Special
Enrollment period ends 60 days after the Department of Labor
releases a related Notification Letter, also expected in
mid-March.
- Employers will take credit for COBRA premium subsidies by
applying them against Federal Income and FICA payroll tax
payments. The IRS has released an updated 941 Quarterly Federal
Tax Form that incorporates the changes needed to take credit for
the subsidy. Refer to the attached IRS website link, and see page
6 for specific subsidy instructions. www.irs.gov/pub/irs-pdf/f941.pdf
- The premium subsidy is applicable to all COBRA eligible health
benefits (Medical, Dental, Vision, etc.); however, Flexible
Spending Accounts are not subsidy-eligible.
- Employers may, but are not required to allow COBRA beneficiaries
to change their enrollment to a lower cost plan option (prior
COBRA rules state that beneficiaries are eligible to elect only
the coverage in place prior to their qualifying event, but are
allowed to make changes during open enrollment for active plan
participants).
- It is the individual’s responsibility to inform the former
employer of eligibility into a new group health plan. Failure to
notify the former employer can result in the COBRA beneficiary
being subject to penalties of up to 110% of monthly COBRA
premiums.
Subsidy Guidelines
- While awaiting the Department of Labor release of the modified
COBRA Notice and Special Enrollment Notice, anticipated by
mid-March as noted previously, employers should review all
terminations since September 1, 2008 to determine whether they
were voluntary or involuntary.
- Of those individuals determined to be involuntary terminated,
the employer should delineate those currently covered under COBRA
provisions of the healthcare plans from those who waived their
continuation of coverage rights.
- COBRA beneficiaries currently covered under the plan(s) will
need to be notified of their rights to the Federal subsidy.
- Those who waived COBRA coverage must be notified of their rights
to enroll in the healthcare plans.
- Carefully consider the language in future severance agreement
policies as the subsidy will not apply if the severance package
includes employer paid COBRA premiums.
This information is intended to help our clients comply with these
temporary changes to COBRA as contained in ARRA; we strongly recommend
that all employers consult with their legal counsel to ensure that all
procedures and documentation are in compliance.
The benefits team at ERP will be keeping its clients apprised as
additional guidance and materials surrounding these changes become
available; please let us know if you would like to be included in
future updates ERP issues on this front. Please also contact us if you
we can provide other assistance relative to your Company’s Employee
Benefit programs.
Additionally, the Department of Labor has launched two new Web sites
with additional COBRA information to assist employers:
http://www.irs.gov/newsroom/article/0,,id=204709,00.html
http://www.dol.gov/ebsa/COBRA.html
Note: The preceding summary is provided solely for
informational/reference purposes. Equity Risk Partners cannot render
legal advice. Before any actions are taken to alter your company’s
COBRA compliance procedure please consult with appropriate legal
counsel.
T H E P A R T N E R S ’ P E R S
P E C T I V E
