COBRA Provisions in the American Recovery
and Reinvestment Act of 2009

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA).  The following describes in brief the provisions in the Act that affect COBRA continuation coverage and similar state continuation coverage.

How will the new COBRA subsidy work?
The Act provides for a new subsidy for certain COBRA beneficiaries.  The subsidy is 65% of the COBRA continuation coverage premiums for eligible individuals for up to 15 months.  The COBRA beneficiary will pay only 35% of the overall COBRA premium for that period (prior to the new law, a qualified beneficiary who elected COBRA was responsible for the entire COBRA premium as well as in most cases an additional 2% administrative cost for the duration of the COBRA coverage period).  The subsidy would terminate (i) after 15 months, (ii) when the individual becomes eligible for major medical group coverage or Medicare or (iii) the end of the maximum required period of continuation under COBRA.

Who is eligible for the new subsidy?
The subsidy is available to individuals (and their dependents) who were involuntarily terminated from their employment and became eligible for COBRA beginning September 1, 2008 through May 31, 2010.   Persons who elected prior to the Act (but on or after September 1, 2008) will be eligible to receive the subsidy prospectively from the date of enactment through the maximum fifteen month period.  Qualified individuals, who initially declined COBRA coverage, would be given an additional 60 days after they receive notice of the special election period to elect to receive the subsidy.  The election period begins on the date of enactment of the ARRA.  Employers or plans will have to provide notice to these groups of individuals.  In addition, a group health plan or insurer must refund the individuals any COBRA premiums that subsidy-eligible persons paid on or after the date of enactment in excess of 35% of the premium.  This may be in the form of a reimbursement payment or credit against future premium payments due.

Eligibility for the Subsidy - Income Test
The subsidy is adjusted based on income.  Joint filers with $250,000 or more of modified adjusted gross income and all other filers with $125,000 or more of modified adjusted gross income are not eligible for the full subsidy.  The subsidy is not considered income as long as the beneficiary meets the income tests. 

Electing a Different COBRA Option
An employer may allow a COBRA-subsidy eligible individual to change his or her health insurance coverage option when making a COBRA election.  The new plan option must be made within 90 days of receipt of the COBRA election notice, must have the same or lower premiums and must be available to non-COBRA active employees under the plan. 

Notice Requirements and Election Period
Under the Act employers must provide modified election notices or provide separate supplemental notices to all persons who became entitled to elect COBRA continuation coverage during the period beginning on September 1, 2008 and ending on May 31, 2010.   

The new forms would notify the individual about the subsidy and, if applicable, the right to change to different benefits options.  The Department of Labor, Treasury and Health and Human Services are working together to provide a model notice within 30 days of enactment.

Notices are required to be sent to subsidy-eligible persons who became qualified beneficiaries before the date of enactment within 60 days of enactment.  The election period for those beneficiaries who became eligible before the date of enactment will begin on the date of enactment and end 60 days after the date the plan administrator provides the required notice. 

Below are key dates and a summary of the COBRA provision:

Key Dates

• Date of enactment is February 17, 2009.
• The date the subsidy is effective is for the first period of coverage on or after February 17, 2009.
• The subsidized period is a maximum of fifteen months.
• The subsidy applies to eligible individuals who had a qualifying event due to involuntary termination on or after September 1, 2008 through May 31, 2010.
• Notices must be sent to individuals within 60 days of enactment.

Summary

• The new legislation expands COBRA and includes a U.S. government subsidy to assist eligible individuals who recently lost their jobs.
• The subsidy is offset by a tax credit against the employer’s wage withholdings and FICA payroll taxes.
• The legislation explains that eligible employees would include those who were involuntarily terminated and were eligible for COBRA coverage during the period from Sept. 1, 2008, through May 31, 2010.
• This means that employers would have to contact certain terminated employees going back a number of months to tell them that they have another opportunity to elect COBRA coverage, starting with the date of the legislation’s enactment. If the employee elects coverage, they would have to pay only 35% of the premium.  

On Friday, February 27, 2009, the IRS released additional information on COBRA Premium Assistance under the American Recovery and Reinvestment Act of 2009 (ARRA).  Below are links to the IRS’s website regarding:

·         Updated Form 941 and instructions on how to complete lines 12a and 12b which employers will need for the premium Subsidy Provision:

http://www.irs.gov/pub/irs-pdf/f941.pdf

 http://www.irs.gov/pub/irs-pdf/i941.pdf

Please visit the Department of Labor website at www.dol.gov for more information related to COBRA eligibility and the subsidy.

This is only an abbreviated summary of the COBRA Amendments as contained within the American Recovery and Reinvestment Act of 2009.  Please refer to DOL documentation for further detail as it becomes available.