Employers Must Act Now to Comply with New COBRA Law

February 19, 2009 (PLANSPONSOR.com) - A new Segal Bulletin points out that health plan sponsors have to make a newly passed government COBRA subsidy available immediately, so they should act now for implementation.

The American Recovery and Reinvestment Act of 2009, signed into law by President Obama on February 17, provides for a temporary subsidy of 65% of COBRA premiums for employees involuntarily terminated between September 1, 2008, and December 31, 2009 (see H.R. 1 Contains COBRA Provisions ). The subsidy is available for a maximum of nine months.

The new law requires that former employees who did not elect COBRA coverage be given an additional opportunity to elect coverage. However, coverage will begin as of the first coverage period on or after February 17, 2009.   The law does not extend coverage back to the date an individual was terminated, Segal notes.

Generally, those qualified for COBRA are only entitled to coverage under the plan that covered them at the time of the qualifying event, but the new law allows subsidy-eligible qualified beneficiaries to elect coverage under plans offered by the employer that cost the same or less than their coverage at the time of termination, the Bulletin says.

Other Subsidy Details

Segal notes that the subsidy is phased out to zero for couples with incomes between $250,000 and $290,000 and singles with incomes between $125,000 and $145,000. Those eligible for the subsidy must pay their share of the premium before the plan can receive the subsidy.

Reimbursement of the subsidy to entities to which former employees pay their premiums will take the forma of a credit against the payroll taxes the plan or employer would otherwise pay to the IRS, with any in excess of the taxes to be reimbursed as cash, the Bulletin says.

The subsidy will cease to be available if the individual receiving the subsidy qualifies for coverage under another group health plan or Medicare.

Preparing for COBRA Expansion

According to the Segal Bulletin, steps health plan sponsors must take now to prepare for implementation of the COBRA expansion include:

  • Determine how to identify individuals whose qualifying event was involuntary termination.
  • Identify those whose health plan coverage terminated after August 31, 2008, including those who did not elect COBRA coverage.
  • Modify existing COBRA election notices to include information regarding the premium assistance subsidy and, if applicable, new coverage options.
  • Review existing COBRA premium methodology and be prepared to document that it meets the COBRA standards in case that is required before receiving the subsidy reimbursement.
  • Prepare to report supporting information about the subsidy reimbursement requested and confirmation that those who received the subsidy were eligible.

The Segal Bulletin can be downloaded from here .