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February 17, 2009
New COBRA Requirements
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Lately, most people working in the Benefits or Human Resources fields have been inundated with information about the new COBRA requirements that are part of the recently passed stimulus package. This mailing will, hopefully, clarify things for you.
1. What is everyone talking about?
The COBRA provision in the American Recovery and Reinvestment Act (ARRA) of 2009 - which President Obama signed on February 17, 2009.
2. What does the ARRA require of employers?
The ARRA provides a 65% federal subsidy for up to 9 months of COBRA premiums for individuals who became eligible for COBRA coverage from September 1, 2008 through December 31, 2009 due to involuntary termination of employment. The bill permits these individuals to satisfy their COBRA premium by paying only 35% of the premium. Plan sponsors are permitted to reduce their payroll taxes to offset the lower premiums paid by qualified beneficiaries. The ARRA also creates a new special election period for those who have not elected COBRA and a new notice requirement to inform individuals about the opportunity to elect COBRA and receive a federal subsidy.
3. Specifically, who is eligible for the COBRA premium subsidy?
Individuals who became (or become) eligible for COBRA coverage from September 1, 2008 through December 31, 2009 due to involuntary termination of employment or loss of coverage due to a reduction of hours that occurred during this period. Full premium subsidies are not available for individuals with annual incomes above $125,000 (single) or $250,000 (joint return). Subsidies are reduced for those with modified adjusted gross income up to $145,000 (single) and $290,000 (joint return). Temporary COBRA premium assistance applies to former covered employees, spouses and dependents.
4. When will the premium subsidy end?
The earlier of:- The date of the individual's maximum period of COBRA coverage (i.e., 18 months from the date of the qualifying event), or
- 9 months after the beginning of the individual's COBRA coverage, or
- The date the individual's COBRA coverage would normally end due to obtaining Medicare or other group coverage.
5. Tell me more about the special election period.
The ARRA creates a special COBRA election period for individuals who did not elect COBRA during their original election period that occurred sometime on or after September 1, 2008 or are currently in their COBRA election period and have not made the COBRA election as of February 17, 2009. This special COBRA election period ends 60 days after the notice of availability of premium assistance is provided by the plan sponsor.
6. What is the effective date of COBRA and the length of COBRA coverage for those individuals who make their election during the special election period?
COBRA coverage will begin on the date of enactment (February 17, 2009). COBRA coverage will not extend beyond the COBRA period that would have been required if COBRA had been originally elected. For example: If a worker was laid off on September 1, 2008 and did not elect COBRA, this worker, if he elected COBRA under the special COBRA election period, would be entitled to COBRA for the remaining months left of the original 18-month qualifying event that occurred on September 1, 2008. COBRA coverage would not be retroactive to September 1, 2008.
7. What if an individual has already paid the full COBRA premium for a portion of their COBRA for which they would be eligible to make a reduced payment?
Plan Sponsors may elect to refund the overpayment or apply the additional funds toward future payments.
8. How is the individual's creditable coverage affected?
The time period beginning on the date of the qualifying event and ending with the day before the date of enactment of the Act will be disregarded for purposes of determining the 63-day break in coverage for HIPAA creditable coverage purposes.
9. How will employers receive reimbursement for their portion of the COBRA premium?
The government subsidy is obtained through a reduction in payroll taxes. Plan sponsors are required to submit reports to the Treasury detailing the amount of payroll taxes offset as well as estimated offsets for subsequent reporting periods.
10. What are some other things that I should keep in mind?
COBRA premium assistance is not available for health flexible spending arrangements. Additionally, the premium assistance does not have to be included in the individual's taxable income.
11. Where can I get additional information?
As specifics regarding the ARRA become available (i.e., sample notices), NGS American is preparing to assist our clients in complying. We will, of course, keep you informed every step of the way.
Employers wishing to change COBRA reason codes previously provided should contact NGS American prior to making any changes. Should any questions or concerns come up, contact your NGS American Account Manager.
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New COBRA Requirements 