COBRA - American Recovery and Reinvestment Act of 2009 (ARRA)

The changes to COBRA due to the American Recovery and Reinvestment Act of 2009 have been very confusing and details have been slow to be disseminated. Below is a short recap of the law.

HR 1 establishes a 65% government subsidy for eligible workers towards their COBRA coverage for up to 9 months. The Treasury Department will administer the subsidy, providing employers or health plans (if they administer COBRA benefits) with a credit against payroll taxes for the cost of the subsidy. Workers who were involuntarily terminated between September 1, 2008 and December 31, 2009, with annual incomes less than $125,000 (single) or $250,000 (couples) are eligible. Additionally, the employee, not the employer, will be responsible for abiding by the salary cap that determines eligibility. Should an employee accept COBRA coverage when they are ineligible, they will have to remit the subsidy to the federal government through their tax returns.

Qualified individuals who initially decline COBRA coverage have an additional 60 days after they receive notice of the special election period to receive the subsidy. Should an employee subsequently elect coverage, the effective date of coverage would begin February 17, 2009, the day that HR 1 was signed into law by President Obama.

Employers must notify qualifying employees who declined COBRA coverage that they now have the right to choose to continue coverage.
An employer's notice must tell eligible individuals they have 60 days to elect COBRA coverage. If they do so, under the new law, the premium subsidy ends after nine months or when they become eligible for health insurance coverage from another employer or enroll in and are covered by Medicare.

Employers must use a federal government issued model notice. Notices must be sent to eligible individuals within 60 days of the enactment date of the new law, which is April 18, 2009. In addition to the regular COBRA notification the employer must also inform the employee of the new subsidy rules, qualifications and reporting obligations.
Model notices can be found on the Department of Labor's website at:
www.dol.gov/ebsa/COBRAmodelnotice.html
Employers should use the updated Form 941, Employer's Quarterly Tax Return, to report their COBRA premium assistance payments.

The Internal Revenue Service (IRS) released guidelines on February 26, 2009, to assist employers with the task of administering these benefits. Employers can visit the IRS’s website for further details. http://www.irs.gov/newsroom/article/0,,id=204709,00.html

If you have specific questions about how this change impacts your organization, contact Skywalk Group