The American Recovery and Reinvestment Act of 2009, also known as the Stimulus Package, was signed into law February 17th, 2009. The Act contains significant changes for COBRA including an employer and employee subsidy of COBRA premiums for employees who were involuntarily terminated from September 1st, 2008 through December 31, 2009 and a special election period for qualified individuals who experienced an involuntary termination on or after September 1st, 2008 and were eligible for COBRA but did not elect coverage (and who are not eligible by another group health plan or Medicare).
How the subsidy works: An assistance eligible individual will only be required to pay 35% of his or her COBRA premium. The remaining 65% of the COBRA premium will be paid by the employer and reimbursed by means of a payroll tax credit to the employer on the 941 form.
Who is eligible: An assistance eligible individual is a person who becomes eligible for COBRA between September 1, 2008 and December 31, 2009 due to an involuntary termination of employment. Further guidance on the meaning of involuntary termination is pending from the DOL. The subsidy applies to spouses and dependents who are eligible for COBRA as well.
Duration of subsidy: The subsidy will be available for nine months, but not beyond the maximum period of coverage required under COBRA, or in the event that the individual becomes eligible for other coverage under another group health plan or Medicare.
Special Election Period: Individuals who would have qualified as an eligible individual but had not elected COBRA as of February 17, 2009 have a special 60-day election period under the Act. The election period begins on the date in which the eligible participant receives the new COBRA notice and ends after 60 days of initial receipt. If an employee elects COBRA during this special election period, coverage shall commence on the first period of coverage after February 17, 2009 and will not go beyond the period of COBRA that would have been required if COBRA had been initially elected.
Notice Requirements: The Act requires all the assistance eligible individuals and their qualified beneficiaries to be notified about the availability of the subsidy and other applicable information. The Secretary of Labor is required to have model notices within 30 days of the enactment date. The notice should be customized to include the adjusted subsidy rates and should be sent to all terminated employees currently on COBRA as well as those who are eligible for the Special Election Period.
Requirements if company is paying COBRA with severance: If the employer pays 100% of COBRA premiums under a written or verbal agreement, the subsidy credit does not apply for that timeframe, however the number of months the premium was paid by the employer counts towards the 9 month duration subsidy requirement.
Action Items for Employers:
- Create a list of all your terminated employees from September 1, 2008 to current, along with reason for termination. You can use this list to track notification dates, acceptance of COBRA, participant payments, tax credits and 9-month subsidy timeline.
- Identify those participants currently on COBRA.
- Identify those participants in their 60-day election period.
- Determine who is an assistance eligible individual (AEI) based upon involuntary termination and should receive the subsidy notice.
- Send the following to the indentified AEI’s:
- COBRA subsidy notice
- COBRA Election form
- COBRA rates effective March 1, 2009
- Appropriate carrier forms if needed
Plan Sponsors may choose to notify assistance eligible participants prior to the DOL required subsidy notice becoming available. The notice, once available, should be sent regardless of any prior notification and employers should review for eligibility when more guidance is given on the meaning of “involuntary termination”.
Your Xenium HR Account Manager can help you work through this process and answer any questions that you may have.
How the tax credit will work: The “employer” of the plan may take the tax credit on the day they receive the COBRA participant’s premium portion (their 35%). Special Note: If you are paying 100% of the COBRA premium per a severance agreement, you are not eligible for the subsidy reimbursement until the terms of the severance agreement are met (but as stated above, the months covered by the employer count toward the nine month subsidy term).