The American Recovery and Reinvestment Act (ARRA) established a “COBRA Subsidy” to help laid off workers keep their healthcare coverage. It is important for companies and employees to be aware of a recent amendment to the ARRA that extends the COBRA Subsidy in several ways.
COBRA is a federal law requiring group health plans of businesses with 20 or more employees to extend insurance protection – at the employee’s expense – to qualifying terminated employees who would otherwise lose coverage. Many states, including Ohio and Kentucky, have enacted COBRA-like laws covering small employers. As originally enacted, ARRA allowed workers involuntarily terminated between September 1, 2008 and December 31, 2009 – and whose COBRA election was effective by December 31, 2009 — to pay only 35% of the cost of continuing their group health insurance for a period of nine months. The remainder of the premium would be paid by the employer, but reimbursed through a federal tax credit. Eligibility for the subsidy was phased out for single employees with over $125,000 in adjusted gross income (“AGI”) in the year of the subsidy ($250,000 if filing jointly) and was unavailable for those with AGIs over $145,000 and $290,000, respectively.
The amendment extends the Subsidy to workers involuntarily terminated through February 28, 2010, even if their COBRA coverage becomes effective after February 28, 2010. This will allow employees terminated before the end of February, but receiving a severance benefit of paid health insurance coverage for some period after termination, to later avail themselves of the subsidy. In addition, the ARRA amendment increases the number of subsidized months from nine to fifteen.
Employees who reached the end of the nine-month subsidy period before the December amendment were faced with a choice of paying the full premium or terminating coverage. For those who dropped coverage after the original subsidy ended, the amendment allows retroactive restatement with a grace period for payment of 35% of the premiums until the later of February 17, 2010 or 30 days after notice of the extension is provided by the plan administrator. For workers who paid the full premium after expiration of the nine month subsidy period, employers may either refund the difference or apply it to future COBRA premiums.
Employers are required to update their COBRA notices and administrative procedures to reflect the changes made by this amendment. Employers must notify those already eligible explaining the transition rules within 60 days of the beginning of the first period to which the extension applies. Workers who became eligible on or after October 31, 2009 must receive a notice explaining the new subsidy by February 17, 2010. In the case of those newly qualifying, notices must be given within normal COBRA time frames. Employers must also determine the procedures they will use for full payments received from those who are now subsidy eligible.
Claudia Allen regularly advises companies regarding employee benefits and other employment-related issues. If you have any questions about the COBRA Subsidy extension and how it applies to you or your company, please call Claudia directly at 513-629-9462.