American Recovery and Reinvestment Act of 2009

New COBRA Legislation creates March 1 Compliance Deadline for Companies

The economic stimulus bill recently signed into law includes a federal subsidy of COBRA premiums for “assistance eligible individuals” (AEIs).  For those who have lost their jobs from  September 1, 2008 through December 31, 2009, the government will pay 65% of premiums for up to nine months.  The subsidy will not be available to individuals with an annual income exceeding $125,000, or couples whose income exceeds $250,000.  Also ineligible are  employees who terminate voluntarily or are terminated for gross misconduct.

These subsidies are to begin March 1, which gives employers little time to comply with the new requirements.  Employers will need to locate and communicate to AEIs laid off since September 1, 2008, who have previously declined COBRA coverage, that each have a new right to opt for the health care package with the knowledge that the government will pay for 65% of the premium beginning March 1.

Individuals will have 60 days from the date of notification from their former employers to receive the subsidized coverage.  They may elect coverage in the health plan in which they were last enrolled, or employers may offer beneficiaries plans that have the same or lower costs.

In addition, former employees who are receiving COBRA benefits need to be notified about the new subsidy.  Employers must also communicate that such coverage will stop once they become eligible for benefits with a new employer or Medicare.  If beneficiaries receive the subsidy when they are no longer entitled to it they will be required to pay back 110% of the premium to the government.

Under the legislation, the beneficiary would directly pay his or her share of the reduced COBRA premium.  However, the employer would receive a credit as an offset to payroll taxes owed to the government for the balance.  Payroll systems will have to be modified to accommodate these changes.

From Business Insurance, Feb. 2, 2009 issue, pp. 1 and 18, and businessinsurance.com articles on Feb. 12-16, 2009