By: Richard T. Kennedy, Esquire - rtk@muslaw.com
The American Recovery and Reinvestment Act of 2009 was signed into law on February 17, 2009. Among other things, the Act provides a subsidy for COBRA premiums. The subsidy generally takes effect on March 1, 2009 and requires immediate action by employers and COBRA administrators. Some key points follow.
Subsidy
The subsidy is a 65% reduction in the amount of the premium an eligible individual is required to pay for up to 9 months of COBRA continuation coverage. An eligible individual will pay 35% of the COBRA premium to the employer, health plan or insurer. The employer, health plan or insurer pays the remaining 65% of the COBRA premium and is reimbursed in the form of a credit against the payroll taxes (income tax withholding and FICA taxes) the employer, health plan or insurer is required to pay to the Treasury Department.
Eligible Individuals
An eligible individual is an employee whose employment involuntarily terminates from September 1, 2008 through December 31, 2009 with eligibility for COBRA coverage along with that employee's spouse and dependents eligible for COBRA coverage. Under a means test, an individual with adjusted gross income of more than $145,000 ($290,000 for joint filers) is not eligible for the subsidy, and an individual with adjusted gross income between $125,000 and $145,000 ($250,000 to $290,000 for joint filers) is eligible for a reduced subsidy. An individual is permitted to permanently waive the subsidy.
Second Election
An eligible individual whose employment involuntarily terminated on or after September 1, 2008 and before February 17, 2009 and who declined to elect COBRA coverage is required to be provided with another COBRA election. Any COBRA coverage elected will be effective with the first coverage period after February 17, 2009, which typically would be March 1, 2009. This election would not extend the total period of otherwise available COBRA coverage.
New Notice Requirements
Notices explaining the new subsidy provisions and other COBRA provisions in the Act will have to be provided to qualified beneficiaries who lose coverage on or after September 1, 2008 and before 2010. Individuals who became entitled to elect COBRA coverage before the February 17, 2009 enactment date must be provided with new notices within 60 days of the enactment date. The Department of Labor has been directed to issue a model notice within 30 days of the enactment date.
Quick Action
- The Act provides little time for implementation. Employers and health plans should consider the following steps:
- Developing the procedures to identify eligible individuals whose COBRA qualifying event was an involuntary termination of employment.
- Identifying COBRA qualified beneficiaries who lost coverage from and after September 1, 2008 so that they may be properly notified of the new COBRA provisions.
- Working with COBRA administrators/vendors to review capabilities and modify existing COBRA notices and procedures and with payroll administrators/vendors to develop reporting and reimbursement mechanisms.
- Reviewing existing documents and plan descriptions for necessary revisions.
Please contact Richard T. Kennedy at (412) 456-2880 or rtk@muslaw.com for additional information.
This Meyer, Unkovic & Scott update is intended to provide information of general interest to the public and is not intended to offer legal advice. Meyer, Unkovic & Scott does not intend to create an attorney-client relationship by providing this information. Readers should consult with counsel before acting upon this information.
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