Employer Notice Needed for COBRA Subsidies

Beginning February 17, the American Recovery and Reinvestment Act of 2009, which is a recently enacted stimulus package, will offer a subsidy for COBRA payments.

Employers will receive a payroll tax credit as reimbursement for the subsidy. The program is intended to last only 9 months- providing temporary subsidized benefits during this time.

Who is Eligible

Those people who have involuntarily lost their jobs between September 1, 2008 and December 31, 2009 will be eligible for the program. Also, the spouses and children of eligible employees can also receive COBRA benefits. However, these individuals must be under the employee's health insurance coverage. Those employees who have lost their jobs and did not immediately elect COBRA will have a chance at re-election.

Employer pays 65% of the Premium, but is Reimbursed in Full

The program requires that the employee pay only 35% of the premium and the employer pay the rest. The federal government will offer a tax credit to those employers who pay the benefits for their employees. The details of the necessary paperwork, filing and reporting will be released at a later date by the IRS and the treasury. If an employer does not have sufficient payroll taxes because of the offset for premiums paid, another mechanism is available.

Another Chance to Elect COBRA

Eligible employees, spouses and children must have elected COBRA at the employee's termination to receive an immediate COBRA subsidy. However, if any of these individuals did not elect COBRA at the time of termination, a new 60-day election period will offer a second chance. Coverage will begin on February 17, 2009 for those who elect to have coverage during the second eligibility period. However, they can remain on COBRA for the allotted period, beginning on the date of their termination. The general amount of time allowed for COBRA subsidies is 18 months, but may vary, as circumstances require. Also, if an individual becomes eligible for another plan or Medicare during this time, then his or her COBRA benefits are no longer valid.

Employer Notice Requirements

Employers are required provide a notice to all employees who had been involuntarily terminated between September 1, 2008 and February 17, 2009. They have 60 days from the date of the enactment of the new legislation to give this notice. Because the bill was enacted on February 17, 2009, the deadline is April 18, 2009. However, a model notice, written by the Departments of Labor, Treasury and Health & Human Services will be released on March 19. Many employers are being advised to wait until this time to draft their own notices. Plan administrators may be useful in providing information about and assisting with the notice requirements. Employers should now be identifying the employees that should be notified about the COBRA benefits, before the notice is released. To ensure that they receive notice, those employees who feel that they are eligible for the benefits can use this time to contact their former employers.

Ability of Persons on Coverage to Switch Plans

Under certain circumstances, employers may also be able to offer the option of switching their former employees to a different coverage, even if they are already enrolled in COBRA. The details of this provision should be determined in conjunction with the employer's plan administrator, attorney or accountant.

Affect on Public Assistance

If an employee, spouse or child applies for other types of public assistance, the COBRA subsidy will not be included in a determination of his or her income and resources.

Affect on Taxes on Individuals

Those who qualify for COBRA and make more than $125,000 in any year (for a single tax return, $250,000 for a joint return) should be aware that a portion of their benefits will be recaptured in taxes. Individuals who make over $145,000 ($240,000 for a joint return) will find that the entire amount of benefits will be recaptured in their taxes. A consultation with an accountant will determine whether or not such individuals should waive their election of the subsidy, to avoid the recapture next year.

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