Labor & Employment Law Articles

2009 COBRA Revisions

On Tuesday, February 17, 2009, President Obama signed the $787 billion American Recovery and Reinvestment Act (the “Act”) into law.  Included in the Act were new Consolidated Omnibus Budget Reconciliation Act (“COBRA”) regulations that will have an immediate and substantial effect on employers.

Pursuant to the federal COBRA law, which applies to employers with twenty or more employees, and state continuation laws (mini-COBRA), which generally apply to employers with fewer than twenty employees, employees who lose group health plan coverage due to an involuntary termination of employment or a reduction of hours, have the right to continue health care coverage at group rates for up to eighteen months (or more in certain instances).  Right now, individuals who elect COBRA coverage must pay the share of the premium previously covered by their former employer, as well as their own share from the old group plan.  Presently, under COBRA, employers are not required to make any contributions to the employee’s health care premium.  Premiums currently average about $1,000 per month.

Under the Act, beginning March 1, 2009, individuals who were/are laid off from September 1, 2008 through December 31, 2009 will be eligible for a sixty-five percent federal subsidy of their COBRA or mini-COBRA premiums for up to nine months or until becoming eligible for coverage under another employer’s plan or for Medicare or Medicaid.  The full subsidy will only be available to individuals with annual incomes of less than $125,000 or couples with an annual income of less than $250,000.  A reduced subsidy is available to individuals with an income between $125,000 and $145,000 and couples with an income between $250,000 and $290,000. 

Employers (for plans subject to the federal COBRA law and/or self-insured plans) or insurers (for insured plans not subject to the federal COBRA law) must front the cost of sixty-five percent subsidy; they will then receive a credit against federal payroll taxes to offset the subsidy.  The credit is applied as though the employer or insurer had submitted an equivalent amount of payroll tax on the date the qualified beneficiary's payment is received. The Secretary of the Treasury will issue guidance on how a claim for the tax credit is to be filed.  If the payroll tax credits are insufficient to cover the COBRA expense, then the employer entitled to reimbursement will receive the remainder of reimbursement directly from the Secretary of the Treasury.

Employers also must promptly notify eligible beneficiaries about the availability of the subsidy, changes in what they have to pay for COBRA, new premium statements, the availability of any lower cost health plan options, the obligation of a qualified beneficiary to notify the plan of eligibility under another plan, and the penalty for the qualified beneficiary’s failure to provide this notice.  (Qualified beneficiaries collecting subsidies for which they are no longer eligible for will be required to repay the government one hundred ten percent of the subsidy they received.) Notices must be sent within sixty days of the enactment of the Act.

Individuals currently on COBRA who do not receive prompt notice and continue to make full payments will be entitled to either a refund from their former employer or a credit to be used against future payments (the employer may select whichever option it prefers.)

In addition, employers will have to contact individuals who lost their jobs after September 1, 2008 but did not elect to have COBRA coverage at the time, and inform them that they have sixty days to sign up for subsidized COBRA coverage.  If these employees elect to enroll in the subsidized COBRA, coverage shall commence with the first period of coverage beginning after February 17, 2009.  (For employers that enroll on a calendar month basis, that would likely be March 1, 2009.)  These employees will be entitled to subsidized COBRA coverage for nine months, but the total coverage for these employees will not go beyond the period of COBRA coverage that would have been required if COBRA had been initially elected. 

For example, an employee laid off on October 1, 2008, who did not enroll in COBRA at that time, but now elects to enroll in subsidized COBRA, shall be entitled to 9 months of subsidized COBRA, from March 1, 2009 until November 30, 2009.  After the expiration of their subsidized COBRA, the employee may remain enrolled in non-subsidized COBRA until March 31, 2010, unless the employee became eligible for coverage under another employer’s plan or Medicare or Medicaid (eighteen months from when they would have begun COBRA coverage had they initially elected).

For more information regarding the new COBRA regulations and notice provisions, please contact us directly.