Economic Stimulus Bill Includes Changes To COBRA
February 20, 2009
The American Recovery and Reinvestment Act of 2009 (“ARRA”), popularly referred to as the economic stimulus bill, was signed into law on February 17, 2009. ARRA made several changes to federal COBRA law that are important to employers.
COBRA Subsidy
The ARRA creates a COBRA subsidy that will permit eligible COBRA participants to pay only 35% of their COBRA premium. The remaining 65% of the premium will be paid by the Treasury Department in the form of a tax credit against employee payroll taxes paid by employers or health plans that administer COBRA benefits.
Individuals can take advantage of the subsidy for up to nine months. However, certain events such as eligibility for Medicare or coverage under any other group health plan will terminate the participant’s premium subsidy.
Only “assistance eligible individuals” may receive the subsidy. “Assistance eligible individuals” are employees who have been or will be “involuntarily terminated” between September 1, 2008 and December 31, 2009, and who are otherwise eligible for and elect COBRA coverage. They also must have earned an annual income of less than $125,000 (single) or $250,000 (couples) while employed. “Involuntary termination” is not defined by the statute but presumably will be liberally construed.
New Election Period
The Act permits eligible individuals who declined COBRA continuation coverage before passage of the bill to elect COBRA coverage and receive the new subsidy. The period for these individuals to elect COBRA coverage began on the date the ARRA was enacted and ends 60 days after an eligible individual’s receipt of a notice from their former employer regarding these new COBRA provisions. The Department of Labor will issue model notices within 30 days for use by employers.
Option To Change Coverage
An assistance eligible individual may enroll in coverage that is different than the coverage he or she had at the time of the qualifying event, provided the employer agrees to allow changes in coverage and the premiums are not higher. In addition, the “different coverage” must be coverage that is offered to active employees and may not be an FSA arrangement or coverage furnished by an on-site medical facility operated by the employer.
Impact On Severance Benefits?
The subsidy may impact how employers structure severance benefits during reductions-in-force. For example, does the subsidy apply where the employer offers to pay some or all of the employee’s share of the COBRA premium, or offers to continue paying the employer’s share of the premium? This issue is open to interpretation and employers who are preparing to offer severance benefits should carefully consider how the design of the severance benefits may impact application of the subsidy.
Effective Date
The effective date for ARRA’s COBRA provisions, including its changes to COBRA premiums, is March 1, 2009.
COBRA Subsidy
The ARRA creates a COBRA subsidy that will permit eligible COBRA participants to pay only 35% of their COBRA premium. The remaining 65% of the premium will be paid by the Treasury Department in the form of a tax credit against employee payroll taxes paid by employers or health plans that administer COBRA benefits.
Individuals can take advantage of the subsidy for up to nine months. However, certain events such as eligibility for Medicare or coverage under any other group health plan will terminate the participant’s premium subsidy.
Only “assistance eligible individuals” may receive the subsidy. “Assistance eligible individuals” are employees who have been or will be “involuntarily terminated” between September 1, 2008 and December 31, 2009, and who are otherwise eligible for and elect COBRA coverage. They also must have earned an annual income of less than $125,000 (single) or $250,000 (couples) while employed. “Involuntary termination” is not defined by the statute but presumably will be liberally construed.
New Election Period
The Act permits eligible individuals who declined COBRA continuation coverage before passage of the bill to elect COBRA coverage and receive the new subsidy. The period for these individuals to elect COBRA coverage began on the date the ARRA was enacted and ends 60 days after an eligible individual’s receipt of a notice from their former employer regarding these new COBRA provisions. The Department of Labor will issue model notices within 30 days for use by employers.
Option To Change Coverage
An assistance eligible individual may enroll in coverage that is different than the coverage he or she had at the time of the qualifying event, provided the employer agrees to allow changes in coverage and the premiums are not higher. In addition, the “different coverage” must be coverage that is offered to active employees and may not be an FSA arrangement or coverage furnished by an on-site medical facility operated by the employer.
Impact On Severance Benefits?
The subsidy may impact how employers structure severance benefits during reductions-in-force. For example, does the subsidy apply where the employer offers to pay some or all of the employee’s share of the COBRA premium, or offers to continue paying the employer’s share of the premium? This issue is open to interpretation and employers who are preparing to offer severance benefits should carefully consider how the design of the severance benefits may impact application of the subsidy.
Effective Date
The effective date for ARRA’s COBRA provisions, including its changes to COBRA premiums, is March 1, 2009.
