On February 17th, 2009, President Obama signed into law the American Recovery and Reinvestment Act (the “Act” or "ARRA"). Generally the “Act” is a stimulus bill, but also includes several important changes to COBRA.
Changes to COBRA
The Act provides for a federal subsidy of 65 percent of the COBRA continuation coverage premiums for qualified beneficiaries receiving COBRA coverage due to the covered employee’s involuntary termination of employment between September 1, 2008, and December 31, 2009. The subsidy is income limited. Subsidy recipients will have to certify that their same-year income will not exceed $125,000 for an individual or $250,000 for a married couple filing jointly. The new law will allow those employees the 65% subsidy for 9 months. The employer would pay the 65% subsidy to the carrier and receive credit for it through reduced payroll taxes. A new 60-day election period will exist for those who did not elect coverage during that time.
In Summary
Any employee that experiences an involuntarily separation from employment after September 1, 2008 will qualify for a 65% premium coverage by the employer for self and all eligible dependents, for 9 months starting the day after his or her last day covered on group insurance. The employer will then receive payroll tax credits to cover the amount paid out on COBRA employees using a new updated 9-41 Form (the IRS and Treasury are expected to issue additional details regarding the credit process). The remaining 35% of the premium amount will be the employees’ responsibility.
A new 60 day election period for COBRA election is also honored, so if the employee did not previously elect COBRA he/she has 60 days to choose to elect coverage now.
Model Notices
Recipients and Deadlines for Notification
Four types of involuntarily terminated employees must be notified of certain rights under ARRA:
Individuals Who Did Not Elect COBRA. Involuntarily terminated on or after September 1, 2008, and before February 17, 2009. This group includes qualified beneficiaries who assertively waived their rights or let their election periods expire.
Notices: ARRA Second Election Notice and Notice of Premium Assistance Rights (These notices may be merged and presented as one.)
Model Notice Deadline: March 19, 2009
Delivery Deadline: April 18, 2009 (No later than 60 days after the enactment date.)
Individuals Who Were In Their 60-day Election Period On February 17. Involuntarily terminated on or after September 1, 2008, and before February 17, 2009.
Notices: ARRA Second Election Notice and Notice of Premium Assistance Rights (These notices may be merged and presented as one.)
Model Notice Deadline: March 19, 2009
Delivery Deadline: April 18, 2009 (No later than 60 days after the enactment date.)
Those Who Elected COBRA Coverage And Remain Covered. Involuntarily terminated on or after September 1, 2008.
Notice: Notice of Premium Assistance Rights
Model Notice Deadline: March 19, 2009
Delivery Deadline: As Soon As Reasonably Practicable
The Act does not specify a timeframe for notification of assistance eligible individuals who are currently covered under COBRA. However, because premium payment assistance will begin on March 1 for most employers, you should deliver this notice in a reasonable timeframe following enactment of the law.
Comment: Because many March premium payments were in the mail when this law was enacted, many will be for 100% of the total premium. You are required to reimburse the qualified beneficiary for the 65% overpayment, either in single payment or as a credit to the QB’s premiums receivable account. The details of how to handle such overpayments are presented in the paragraph entitled “Premium Overpayments.”
Those who were or will be involuntarily terminated between February 17 and December 31, 2009.
Notice: Notice of Premium Assistance Rights. Sent with the Qualifying Event (QE) Notice. (These notices may be merged and presented as one.)
Model Notice Deadline: March 19, 2009
Delivery Deadline: 44 Days After The Termination Date
For eligible individuals terminated after ARRA’s enactment, the normal notification delivery rules apply. Qualified beneficiaries must be notified of their COBRA election rights, including their new rights under ARRA, no later than 44 days after the qualifying event date. (30 days for the employer to notify the plan administrator, 14 days for the plan administrator to furnish the notice. 44 days when the employer is also the plan administrator.)
Comment: Contrary to information provided by some sources, the Act does not say that these qualified beneficiaries must be notified of their premium assistance rights “immediately.” The paragraph in question references ERISA section 606(a)(4), which specifies COBRA notification requirements. Thus, the delivery requirement defaults to the normal COBRA notification rules.
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