The American Recovery and Reinvestment Act recently created a federal subsidy for COBRA premiums of employees involuntarily terminated between September 1, 2008 and December 31, 2009. The Act provides a 65% subsidy for COBRA premium payments, leaving eligible individuals responsible for paying only 35% of the cost. Any entity that collects COBRA premiums (employers, third party administrators or insurance companies) must immediately begin collecting only 35% of the premium, and will receive the 65% subsidy as a credit against payroll taxes. In almost all cases, it appears that the employer will be the party responsible for paying and seeking reimbursement for the 65% subsidy (as the carrier or third party administrator will almost certainly bill this back to the employer).
Under most insurance plans, the subsidy will begin on March 1, 2009. The subsidy expires on the earlier of 1) nine months; 2) the date the individual (or dependent) becomes eligible for medical coverage from a new employer or Medicare; or 3) when COBRA coverage ends. Individuals who elected COBRA on or after September 1, 2008 are eligible to receive the subsidy prospectively from March 1, 2009; the subsidy is not retroactive. This means you will need to contact those employees whom your company laid off after September 1, 2008 to allow them to claim the subsidy for payments made beginning March 1, 2009.
The Act also creates a special election period for previously terminated individuals who did not enroll in COBRA and for those who enrolled but dropped due to expense. Plan administrators must notify all eligible individuals of the new subsidy and the special election period. The special election period runs from February 17, 2009 until 60 days after the plan administrator sends out the notice. A sample notice is expected from the Department of Labor by March 19, 2009. Failure to comply with notice requirements will be a COBRA violation, subject to penalties.
Eligibility for the subsidy is based on the employee’s eligibility to elect COBRA at the time of termination and income level. Individuals earning less than $125,000 adjusted gross income (joint filers earning less than $250,000) receive the full subsidy. The subsidy lessens for incomes $125,000 and over, and phases out completely for individuals with adjusted growth income of $145,000 or more (joint filers with $290,000 or higher).
Although federal COBRA typically only covers employers with 20 or more employees, these new provisions specifically provide that they are to cover smaller employers in states that have their own laws like CalCOBRA. If you have any questions regarding the new subsidy for COBRA premium payments, please contact a member of our EMPLOYMENT LAW GROUP.