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American Recovery and Reinvestment Act (ARRA) and COBRA Subsidy Update
Posted: Thursday, March 12, 2009
On February 17, 2009 President Barack Obama signed the American Recovery and Reinvestment Act Of 2009 (ARRA), more commonly known as the Economic Stimulus Bill. Among its many provisions, the ARRA modified COBRA regulations temporarily. In order to assist those employees who have lost their jobs since September 1, 2008, the ARRA requires that employers re-offer COBRA coverage to all eligible individuals at 35 percent of the total COBRA rate. The Federal government will subsidize 65 percent of the cost by allowing employers to take a credit on their payroll taxes for all individuals who elect the subsidized COBRA rate. The premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months.
The premium subsidy also applies to State Continuation for the same period. Employers can take credit for State Continuation premiums after they are paid by the employee and employer as with the COBRA subsidy (click on the links in the column to the right for additional information and resources.)
The Department of Labor (DOL) is required to provide modified COBRA Notices and Election forms by March 19th. We recommend that you wait for those official documents to send notices. If your employees are calling you requesting COBRA effective March 1st, you can certainly add them to your group coverage at this time, and we have provided a sample election form for your use. You may want to have them return the official form when provided.
This new regulation has raised a number of questions, which we find have been answered best by certain government documents.
Guidance from the Department of Labor:
Changes Regarding COBRA Continuation Coverage Under ARRA Premium Reduction: The premium reduction for COBRA continuation coverage is available to "assistance eligible individuals".
An "assistance eligible individual" is the employee or a member of his/her family who:
- is eligible for COBRA continuation coverage between September 1, 2008 and December 31, 2009
- elects COBRA coverage, and is eligible for COBRA as a result of the employee's involuntary termination between September 1, 2008 and December 31, 2009
Those who are eligible for other group health coverage (such as a spouse's plan) or Medicare are not eligible for the premium reduction. There is no premium reduction for premiums paid for periods of coverage prior to February 17, 2009.
The new legislation treats assistance-eligible individuals who pay 35 percent of their COBRA premium as having paid the full amount. The COBRA premium includes the 2 percent administration charge. The premium reduction (65 percent of the full 102 percent premium) is reimbursable to the employer, insurer or health plan as a credit against certain employment taxes. If the credit amount is greater than the taxes due, the Secretary of the Treasury will directly reimburse the employer, insurer or plan for the excess.
The premium reduction applies to periods of coverage beginning on or after February 17, 2009 and lasts for up to nine months. A period of coverage is a month or shorter period for which the plan charges a COBRA premium. The premium reduction starts on March 1, 2009 for plans that charge for COBRA coverage on a calendar-month basis. The premium reduction for an individual ends upon eligibility for other group coverage (or for Medicare), after nine months of the reduction, or when the maximum period of COBRA coverage ends, whichever occurs first. Individuals paying reduced COBRA premiums must inform their plans if they become eligible for coverage under another group health plan or Medicare.
Special COBRA Election Opportunity: Individuals involuntarily terminated September 1, 2008 through February 16, 2009 who did not elect COBRA or state continuation when it was first offered OR who did elect COBRA but are no longer enrolled (for example, because they were unable to continue paying the premium) have a new election opportunity.
This election period begins on February 17, 2009 and ends 60 days after the plan provides the required notice. This special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee's involuntary termination). COBRA coverage elected in this special election period begins with the first period of coverage beginning on or after February 17, 2009.
Notice Responsibility: Plan administrators must provide notice about the premium reduction to individuals who have a COBRA qualifying event during the period from September 1, 2008 through December 31, 2009. Plan administrators may provide notices separately or along with the notices they provide following a COBRA qualifying event. This notice must go to all individuals, whether they have COBRA coverage or not, who had a qualifying event between the period of September 1, 2008 to December 31, 2009.
Individuals eligible for the special COBRA election period described above also must receive a notice informing them of this opportunity. This notice must be provided within 60 days following February 17, 2009.
Expedited Review of Denials of Premium Reduction: Individuals who are denied treatment as assistance eligible individuals and thus are denied eligibility for the premium reduction (whether by their plan, employer or insurer) may request an expedited review of the denial by the U.S. Department of Labor. The Department must make a determination within 15 business days of receipt of a completed request for review. The Department is currently developing a process and an official application form that will be required to be completed for appeals.
Switching Benefit Options:If an employer offers additional coverage options to active employees, the employer may (but is not required to) allow assistance eligible individuals to switch the coverage options they had when they became eligible for COBRA. To retain eligibility for the ARRA premium reduction, the different coverage must have the same or lower premiums as the individual’s original coverage. The different coverage can not be coverage that provides only dental, vision, a health flexible spending account, or coverage for treatment that is furnished in an on-site facility maintained by the employer.
Income Limits: If an individual’s modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for joint filers), then the amount of the premium reduction during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), the amount of the premium reduction that must be repaid is reduced proportionately. Individuals may permanently waive the right to premium reduction but may not later obtain the premium reduction if their adjusted gross incomes end up below the limits. If you think that your income may exceed the amounts above, consult your tax preparer or contact the IRS at www.irs.gov.
This fact sheet has been developed by the U.S. Department of Labor, Employee Benefits Security Administration, Washington, DC 20210 and modified by Benefits & Incentives Group.
Additional Resources & Employer Action Steps:
We have prepared following resources to assist you in complying with ARRA. Click here the links below to access the these additional resources. If you have trouble accessing any of these documents, please email kkrapf@bigroupinc.com.
The information in this update should not be considered as tax or legal advice. Further counsel should be directed to your tax or legal advisor or the proper governmental regulatory agency.
If you have questions regarding this Update, please contact your Benefits & Incentives Group representative at (303) 750-6200.
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