COBRA Expansion and Premium Subsidy Under The 2009 Stimulus Act

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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.

See:

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8 Responses to COBRA Expansion and Premium Subsidy Under The 2009 Stimulus Act

  1. Imee March 25, 2009 at 7:35 am #

    I think this 65% subsidy by the government is a good move. It will not only give cool points to the Obama administration–it will save a LOT of money for many unemployed out there who are using COBRA.

  2. Dave Atkins March 25, 2009 at 8:53 pm #

    My understanding of the law–and what my former employer told me–is that the Federal subsidy is NOT retroactive. The option to elect and the eligibility is, but in the case of an employee laid off on 12/31/08, that employee will still have to pay 100% of COBRA premiums for January and February 2009 until the Federal subsidy kicks in for March 2009. Also, even if an employee has not “used” health care in January and February, if that employee elects COBRA, the term predates to the termination date. So in the admittedly “edge case” I’m in, I have to pay January, February, and March by April 15. Rather than continue to debate the issue with my former employer, once I knew I qualified for MSP assistance, I elected COBRA on March 1 and conceded that I’d have to cough up the Jan/Feb money.

    The language in the Act is confusing because as you described above, it talks about employers having to refund excess premiums paid. But on the DOL website FAQ:

    Q18: I am an assistance eligible individual who has been enrolled in COBRA coverage since December 2008. Will I receive a refund of 65% of all the premiums that I have already paid?
    No. The premium reduction provisions apply only to premiums for coverage periods beginning on or after February 17, 2009.

    On a brighter note, Massachusetts has, in an amazing act of common sense, decided to continue the Medical Savings Program Premium Assistance subsidy of 80% for families who qualify (400% Fed Poverty level) AND apply it on top of the reduced premium. This means Mass residents who qualify for MSP will only end up paying 7% of the full cost of COBRA–a better deal than they had when they were employed.

    • Doug Cornelius March 25, 2009 at 9:55 pm #

      Dave –

      Thanks for the clarification. The details of COBRA and the subsidy are outside of my scope of knowledge.

      My blog posts are mostly my notes on what I pick up. I generally only dive in as far as it interests me or as much as might need for my company.

      As always, get competent legal advice and don’t rely on my notes!

  3. Sian Gruffydd April 2, 2009 at 11:07 pm #

    For people in the “special election” period, they have 60 days to elect. Those people are the employees (with qualifying events between 9/1/08 and 2/17/09) who did not elect cobra or terminated due to non-payment. Their coverage would begin 3/1/09. You would not have to retroactively pay back to the insurance termination date.
    Ordinarily during the cobra election period, you can decline coverage (by sending the form in stating you decline the coverage) and then change your mind and elect it if it is within that 60 day election period. Your coverage would begin on the date you furnish your election form to the employer or third party administrator. So, make a photocopy of the application (one for the decline and one for the acceptance).

  4. Lisa Ferguson May 11, 2009 at 8:20 pm #

    This administration is really showing well.I just received my cobra subsidy quote from my previous employer and I am very pleased. Presubsidary my monthly rate would have to pay 643.00 per month vs 161.01.

    Well Done
    Lisa Fergvuson

  5. Patricia Larkin October 24, 2009 at 11:40 pm #

    I was just laid off 10/22/2009 will my 35% cobra coverage go for 9 months?, or, as my fromer boss thinks end on 12/31/2009, and then I will have to pay full pop??? Help please
    Patricia Larkin
    Tucson, Az

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