COBRA Expansion and Premium Subsidy Under The 2009 Stimulus Act

logo goulston and storrs

Jack Eiferman, Director, Goulston & Storrs, specializes in healthcare and Adrienne Markham, Director, Goulston & Storrs, specializes in employment law gave this webinar and I thought I would share my notes.

Adrienne pointed out that federal COBRA is only for companies with more than 20 employees. Massachusetts, like many other states, have a mini-COBRA that applies to companies with fewer than 20 employees.

The ARRA added the new temporary COBRA subsidiary that applies to anyone “involuntarily terminated” since September 1, 2008 and prior to the end of 2009. There is an exception if you are involuntarily terminated for gross misconduct. Then you are not eligible for COBRA or the subsidiary.

Unfortunately the law does not define “involuntarily terminated.” If you want to get the subsidy you need to properly document the termination.

Employers are allowed to add a 2% administrative premium on COBRA coverage. The subsidy is 65% of the health care insurance costs. Employer gets a dollar for dollar credit on the payroll tax for the subsidy.

The subsidy benefit is currently for 9 months. (Although there is some discussion on extending the duration.) COBRA coverage is for eighteen months and remains unchanged.

If you already received checks for COBRA coverage. You can either refund the overpayment to the employee or credit the excess payments to future payments (as long as the catch-up within 120 days).

For COBRA eligible employees who did not elect COBRA or dropped the coverage, they get a second bite at the apple. You need to send a notice to those employees giving them another chance at electing COBRA coverage.

It also applies to other health coverage like dental and vision, as well as medical coverage. It does not apply to health care reimbursement plans.

The employer cannot pay the 35% payable by the employee. The employee or anyone except the employer must pay the 35%. The employer cannot claim their 65% credit until the employee pays their 35%.

There are some income requirements for eligibility. But this is the responsibility of the employee, not the employer.

What to do?

  • Identify all former employees who were subject to COBRA triggering events from September 1, 2008 to February 17, 2008.
  • Identify those who are eligible.
  • Send the right notice.
  • Manage the payment and election process.

It is important to have a compliance program for tracking eligible employees, premium payments, tax filings, etc.