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Changes to COBRA Require Employer Action

Guest post by: Allison Grace

Article Overview: Summary of the COBRA subsidy included in the stimulus package and action that employers must take to comply.

Changes to COBRA Require Employer Action

The American Recovery and Reinvestment Act of 2009 signed by President Obama in February 2009, provides subsidies for COBRA premiums and special election rights for employees who lose (or already lost) coverage between September 1, 2008 and December 31, 2009. These subsidies and rights are available beginning March 1st and employers must notify affected individuals by April 13th.

Who is affected?
An individual is eligible for this assistance if he or she:

is an employee or dependent who loses (or already lost) coverage under a group health plan between September 1, 2008 and December 31, 2009 as a result of involuntary termination of employment (other than for gross misconduct); and
elects COBRA continuation coverage during the original COBRA election period or during the special election period.
What’s the special election period?
A qualifying individual who did not elect COBRA when it was first offered will have a second chance to elect COBRA coverage. The same applies to a qualifying individual who elected COBRA initially and then terminated coverage. The one-time, special election period ends 60 days after the employer provides the special election notice. Qualifying individuals who elect COBRA coverage during the special election period will have their coverage begin on March 1, 2009, and a pre-existing condition exclusion cannot be applied because of any break in coverage. The special election period will not extend the maximum period of COBRA coverage, and will not make coverage effective before March 1, 2009. The maximum period of COBRA coverage is still measured from the date of the original qualifying event, i.e., termination date.

What’s the subsidy?
Under existing law, employees pay 100% of their COBRA premiums. Under the new law, employers will pay 65% of the COBRA premium for group medical, dental and/or vision plan coverage. The employee will pay the other 35%. The employer’s portion of the subsidy will be reimbursed by the federal government through a credit on payroll taxes. For March and April of 2009, if a qualifying individual pays more than 35% of the COBRA premium, the employer may either reimburse the individual within 60 days for the overpayment and treat the reimbursement as a credit toward payroll tax, or credit the overpayment toward the individual’s future COBRA premium payments.

The subsidy is phased out for qualifying individuals with modified adjusted gross income above $125,000 if filing singly, or above $250,000 for married persons filing jointly. Individuals earning between $125,000 and $145,000 (or $250,000 and $290,ooo for joint filers) will be taxed on a portion of the subsidy. Those earning over $145,000 (or $290,000 for joint filers) will be taxed on the full amount of the subsidy. A higher income individual may elect to waive receipt of the subsidy to avoid the additional income tax liability.

The subsidy will end on the earliest of (1) when COBRA would normally end (COBRA typically lasts for up to 18 months for employees; longer periods may apply for dependents and disabled individuals); (2) after nine months of subsidy; or (3) when the qualifying individual becomes eligible for coverage under another group health plan, a flexible spending arrangement, an on-site medical treatment program, or Medicare. Individuals are required to notify the employer of eligibility for other coverage, and are subject to a penalty of 110% of the subsidy for failure to do so.

What’s the notice requirement?
Employers must notify qualifying individuals of these new COBRA rights no later than April 13, 2009, using one of two different notices. One notice must be provided to all qualifying individuals currently on COBRA continuation coverage as of March 1, 2009. The other notice must be provided to qualifying individuals who declined COBRA when it was initially offered or who elected by subsequently terminated COBRA coverage before March 1, 2009. Model notices will be provided by the Department of Labor by March 19, 2009 and we will post them here at Instant HR Solutions as soon as they become available.

What do I need to do as an employer?
Compile a list of all employees who were involuntarily terminated other than for gross misconduct since September 1, 2008, and divide that list between those currently enrolled in COBRA and those who are not.

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Article Tags: cobra continuation coverage, cobra coverage, cobra election, condition exclusion, election notice, election period, gross misconduct, group health plan, involuntary termination, march 1, maximum period, obama, original cobra, plan coverage, premiums, reinvestment act, second chance, subsidy, termination of employment, vision plan



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