CLIENT ALERT: COBRA Coverage Changes And The Stimulus Plan’s Immediate Effect Upon Employers

Last Tuesday, President Obama signed into law the American Recovery and Reinvestment Act of 2009. The Act contains provisions that will immediately and significantly affect employers’ obligations and costs under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). Beginning March 1, 2009, eligible employees involuntarily terminated from employment between September 1, 2008 and December 31, 2009 may elect COBRA coverage at a 65% discount. Employers must advance the costs of this discount, although they will be entitled to a payroll tax credit for the amount advanced to pay for this discount. Below is a general summary of the Act’s COBRA discount provisions, but contact your Meyers Roman attorney to discuss your specific situation. 

 

PREMIUM ASSISTANCE 

Eligible employees may elect COBRA benefits at just 35% of the COBRA premium. The former employer will be required to subsidize the remaining 65 percent. This premium assistance may be provided for up to nine months or until the individual is offered other employer-sponsored healthcare coverage or qualifies for Medicare. 

For employees who involuntarily lost their jobs on or after September 1, 2008 but did not elect COBRA coverage, the Act grants a 60-day window to elect coverage. This election does not extend the period of COBRA continuation coverage beyond the original maximum coverage period. The break in coverage because of the employee’s earlier decision not to elect COBRA coverage will not be considered a break in coverage for purposes of coverage for a pre-existing condition. The actual coverage, however, begins March 1 and the employee cannot receive reimbursement for costs incurred prior to the special election which would have been paid if the employee had previously elected COBRA coverage. 

Single employees with an adjusted gross income of $125,000 or higher or married employees with a joint adjusted gross income of $250,000 or higher are entitled to premium assistance but must repay some or all of the subsidy through a recapture tax. To avoid later repayment, eligible individuals may waive their right to the premium assistance if they believe they will exceed the gross income threshold. 

 

EMPLOYER PAYROLL TAX CREDIT 

Employers or health plans administering COBRA benefits will receive a credit against payroll taxes for the 65% premium assistance provided to employees. If the amount of the premium assistance exceeds the employer’s payroll tax, the employer can seek direct reimbursement from the United States Treasury Department. No reimbursement will be made until the discounted premiums due from the qualified individuals have been received. 

Employers will be required to submit reports 

  • attesting to the involuntary termination; 
  • reporting the amount of payroll taxes offset; and 
  • identifying the persons receiving the premium assistance. 

The Treasury Department will issue regulations governing employers’ responsibilities and obligations under this Act, but has not yet done so. 

 

EMPLOYER’S NOTICE OBLIGATIONS 

Employers or health plans administering COBRA benefits must provide notice of the 65% premium discount beginning March 1st to newly-qualifying employees and to former employees who have elected COBRA coverage. If an individual pays, or has paid, the full premium prior to the employer’s notice, the employer can refund the overpayment or provide a credit to future payments. 

By April 18, 2009, employers must give notice of eligibility to employees who were involuntarily terminated on or after September 1, 2008 but did not timely elect COBRA coverage. The notice must include: 

  • the forms necessary for premium reduction; 
  • the name and contact information of the plan administrator; 
  • a description of the extended election period; 
  • a description of that individual’s notice obligations; 
  • a description of the right to enroll in an alternative plan if permitted by the employer; and 
  • a prominent description of the individual’s right to a reduced premium and the conditions on that entitlement. 

Qualified individuals then have 60 days to elect to participate in the program. The Act requires the Department of Labor to develop model notification forms no later than March 19, 2009. These forms have not yet been published. 

Your obligations and costs under this portion of the stimulus plan will depend upon your specific circumstances. This letter and Client Alert is a summary only, prepared for general informational purposes, and is not an exhaustive description of the COBRA provisions of the American Recovery and Reinvestment Act of 2009, and related issues. Nothing in this letter is intended or is to constitute a legal opinion or legal advice of the undersigned or Meyers, Roman, Friedberg & Lewis. 

 

If you would like to discuss how these changes affect you or your business, or for a fuller description of the COBRA provisions of the American Recovery and Reinvestment Act of 2009, please contact: 

 

Scott M. Lewis, Esq. 

MEYERS, ROMAN, FRIEDBERG & LEWIS 

28601 Chagrin Boulevard, Suite 500 

Cleveland, Ohio 44122 

(216) 831-0042, ext. 139