Stimulus Bill Provides COBRA Changes

The American Recovery and Reinvestment Act of 2009, better known as the "Stimulus Bill," will be signed into law on February 17, 2009. Although the primary thrust of the Stimulus Bill is aimed at the current economy, among its many varied provisions are important changes to employer COBRA obligations.

COBRA provides employees and their dependents who otherwise might lose health benefits the right to continue benefits at group rates for up to eighteen months (and sometimes longer). In most instances, the employee pays the cost of COBRA - the monthly insurance premiums.

The Stimulus Bill provides a COBRA subsidy for eligible employees and former employees, and a corresponding payroll tax credit to employers for the cost of the subsidy. Specifically, the employer will pay sixty-five percent of the health insurance premiums for up to nine months. The amount paid then will be applied as a credit towards the employer's payroll taxes. The employee would remain responsible for the remaining thirty-five percent of the premium cost.

Eligible employees for the subsidy are those who have been involuntarily terminated from employment between September 1, 2008 and December 31, 2009, and who have an annual individual income of less than $125,000 or a family income of less than $250,000.

Since the COBRA changes apply retroactively to those employees involuntarily terminated on or after September 1, 2008, eligible employees who initially declined COBRA coverage must be given an additional sixty day period to elect COBRA coverage with the new subsidy. Employers will need to send qualified employees and their beneficiaries amended COBRA notices. For those who then elect coverage, the coverage period would begin on February 17, 2009, not on the original date of employee termination.

Employers also will need to amend their standard COBRA notices for the remainder of 2009. The U.S. Department of Labor is expected to issue model notices by mid-March.

Posted by Thamer E. "Chip" Temple, III