On February 17, the President signed the $787 billion stimulus package, known as the American Recovery and Reinvestment Act of 2009. This Act requires employers (or insurers) to subsidize 65% of the COBRA premiums otherwise charged to certain involuntarily terminated employees (and their covered dependents), beginning as soon as March 1, 2009.
The subsidy applies to employees who were involuntarily terminated during the period starting September 1, 2008, and ending December 31, 2009; and is available for up to nine months. The employer (or insurer if it pays the subsidy) may recoup the subsidy through tax credits against its employment taxes or other taxes, as provided in the Act. The new COBRA rules are highlighted below or you may view a complete summary of the rules on our Web site.
To comply with the Act, employers and health plan administrators must take the following immediate actions:
1. Offer a "Second Chance" COBRA Election:
- First, identify all former employees (and their covered dependents) who were entitled to elect COBRA continuation coverage for any reason during the period starting September 1, 2008, and ending February 17, 2009. If any of them did not elect COBRA coverage, or dropped it before it expired, they may be eligible for a "second chance" to elect COBRA coverage at the subsidized rate.
- Plan administrators must prepare to give them a new type of COBRA notice, offering this "second chance" to elect coverage that would begin as soon as March 1, 2009, with their premium reduced by the 65% subsidy. However, they can make this election only if the former employee's employment was involuntarily terminated during the period starting September 1, 2008, and ending December 31, 2009. This notice must be given within 60 days after February 17, 2009. Please note that U.S. Department of Labor is required to publish a model notice for this purpose, within 30 days after February 17, 2009.
- If an individual is eligible to make the new election, and the original period for the individual's COBRA coverage has not expired, the plan must accept the new COBRA election if it is made within 60 days after the individual receives the notice described above; and the individual pays the non-subsidized 35% of the COBRA premium. The new election provides coverage only for the remaining months of the original 18-month COBRA period that began when the individual lost coverage due to the employment termination.
- If any of those individuals continued to receive COBRA coverage as of February 17, 2009, they must be given a new general notice about the COBRA premium subsidy within 60 days after that date. That notice is described below.
2. Notify COBRA Beneficiaries about COBRA Premium Subsidy: Next, prepare to give a premium subsidy notice to all individuals who become entitled, during the period starting September 1, 2008, and ending December 31, 2009, to elect COBRA continuation coverage for any reason. This notice may be included with the usual COBRA notice and will describe the premium subsidy for any continuation coverage that results from an employee's involuntary termination of employment during the period starting September 1, 2008, and ending December 31, 2009. Please note that U.S. Department of Labor is required to publish a model notice for this purpose by March 19, 2009.
3. Change COBRA Payment Procedures:
- Determine which entity involved with the group health plan will pay for the premium subsidy and be reimbursed by the federal payroll tax credit. This may be a self-insured employer or an insurer.
- Prepare to track COBRA premium payments actually made by (or on behalf of) individuals eligible for the premium subsidy, and track the related monthly premium subsidy amounts to be credited against the paying entity's payroll taxes. COBRA premiums paid by the employer are not eligible for the subsidy.
- Prepare new notices to advise eligible individuals when they reach the maximum time limit for the premium subsidy.
We can guide you through the new COBRA rules and help you prepare the necessary notices and procedures. For this help, and a more complete summary of the new COBRA premium subsidy rules, please contact one of the lawyers listed on this Alert.
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