The American Recovery and Reinvestment Act of 2009 was signed into law on February 17, 2009 by President Obama. The new law includes a federal subsidy for COBRA premiums for up to 9 months that will reduce qualified participant's COBRA premiums up to 65%. Our hope in this article is to outline who is eligible, convey the employer's role throughout this process and provide the appropriate resources to implement these changes.
What is the subsidy, when does it start, and who does it effect?
The subsidy will be available beginning on March 1, 2009 for individuals with a COBRA-qualifying event between September 1, 2008 and December 31, 2009. For individuals making less than $125,000 per year and couples making less than $250,000 annually, 65% of their COBRA premiums will be subsidized by the Federal government. For individuals making between $125,000 and $145,000, and couples making between $250,000 and $290,000, the subsidy will be reduced. At this time we do not know the reduced amount.
Employees who voluntarily terminated from employment or individuals who did not participate in the employer-sponsored medical and dental plan are not eligible for the subsidy. The COBRA subsidy is available for up to 9 months of COBRA coverage or until individuals are eligible for coverage under another employer's plan, or Medicare. The standard COBRA window of 18 months does not change.
Continuation coverage provided to a qualified individual and any dependents (including family members) also qualifies for the subsidy. The dependent must, however, qualify for the continuation coverage as specified by COBRA, FEHB or the State continuation coverage requirements.
Because the subsidy will begin March 1, 2009, individuals will not be able to receive reimbursement for premiums they paid for COBRA coverage prior to this date. Individuals with COBRA coverage will be eligible on March 1, 2009 and will receive the subsidy. There is a 60-day window to reimburse or credit after enactment to give employers and insurers time to put the process in place. Employers are required to notify all individuals with a COBRA-qualifying event of the subsidy. Individuals have the right to elect the subsidized COBRA coverage even if they previously declined coverage back to September 1, 2008. They have 60 days following the date they receive the COBRA notification to elect coverage. However, the effective date will be retroactive to March 1, 2009 and the individual must pay premiums back to that date.
What is the employer's role?
The subsidy must be communicated to individuals with a COBRA qualifying event that occurred between September 1, 2008 and December 31, 2009. Employer's COBRA notices must be revised to contain additional information about the subsidy. The Department of Labor has provided model notice language. These samples can be found at the Department of Labor or the Bates Insurance Group's websites for your convenience. Individuals who would have been eligible for the subsidy, but either didn't elect COBRA or elected it and let it lapse, must be given a special 60-day period in which to elect coverage. The subsidy will be administered as follows:
- Employers with 20 or more employees: the employer will administer the subsidy and will be entitled to reimbursement through their 941 reporting.
- Employers with up to 20 employees: the insurance company will administer the subsidy and will be entitled to reimbursement by the government. (Note: this issue has been submitted by several industry groups as problematic in states where employers collect continuation premiums from employees. Further clarification in federal rules may be forthcoming)
A typical example of how this will work for most employers:
- 102% of the active employee premium is $1,000
- Employer charges $1,000 to purchase COBRA
- 35% of $1,000 = $350 - the individual is required to pay $350
- The employer will pay $650 (65%) and then be reimbursed via a payroll tax credit on their 941 report.
The new law requires the federal Department of Labor to provide an expedited review of any employer's refusal to allow a worker to elect group continuation coverage and receive the subsidy. Once the denied individual submits an application for review, the Department of Labor shall make an eligibility determination within 15 business days.
What to do next?
All employers will need to contact their COBRA administrator to inform them of eligible COBRA candidates. For employers that self administer COBRA, eligible candidates need to be identified and letters need to be sent. At this time employers are encouraged to use the Department of Labor's sample forms posted on the Department of Labor and the Bates Insurance Group websites.
To assist our clients throughout this transition, the Bates Insurance Group has posted a number of useful tools at www.batesinsurancegrp.com. You can find these resources on the Client Resources. You will find the Department of Labor's sample COBRA notices, the general information websites for the IRS and Department of Labor, various insurance company press releases on the COBRA changes, useful phone numbers and more.
As always we would encourage those of you with additional questions to contact us for assistance.
COBRA Subsidy Frequent Asked Questions, HealthPartners, March 2009