The American Recovery and Reinvestment Act of 2009, otherwise known as the "Stimulus Bill," signed on February 17, 2009, by President Obama includes amendments to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). The COBRA amendments provide for a federal subsidy that lowers the cost of COBRA continuation coverage for employees whose employment was or is involuntarily terminated (other than for gross misconduct) from September 1, 2008, through December 31, 2009, as well as their eligible dependents (collectively, "Assistance Eligible Individuals"). The subsidy applies to all group health plans subject to COBRA. Thus, the Stimulus Bill may affect every employer that sponsors a group health plan for employees and has already or later terminates or lays-off employees between September 1, 2008, and December 31, 2009.
COBRA's New Federal Subsidy
COBRA previously allowed qualified individuals to continue health care coverage after their employment ended by paying 102% of the cost of health premiums under an employer's group health plan. The Stimulus Bill subsidizes up to 65% of the COBRA premiums for Assistance Eligible Individuals. As a result, Assistance Eligible Individuals will pay 35% of the COBRA premium payment for plan periods that occur after February 17, 2009, (the date on which the Stimulus Bill took effect) and may also be eligible for repayment of subsidy eligible COBRA payments made since September 1, 2008. The remaining 65% of the premium cost will be covered by the employer. The employer may, then, seek reimbursement from the federal government in the form of a credit against the employer's quarterly federal employment tax filings. The subsidy is available to Assistance Eligible Individuals for a time period not to last longer thannine months. The Stimulus Bill's subsidized COBRA coverage benefit phases out for high-income individuals with a modified adjusted gross income over $125,000 for the tax year in which they receive the subsidy or $250,000 for joint filers.
Reviewing Terminations and Layoffs Between September 1, 2008, and February 17, 2009
The subsidized COBRA premiums under the Stimulus Bill apply retroactively to any employee involuntarily terminated from employment (other than for gross misconduct) since September 1, 2008. Accordingly, employers will need to examine their records for employees who were terminated or laid off between September 1, 2008, and the enactment of the Stimulus Bill on February 17, 2009, and give the employees new notification of COBRA rights which includes information about the government subsidy. Employers must provide the new notification by April 17, 2008. The U.S. Treasury Department is scheduled to issue model notices within the next 30 days. An Assistance Eligible Individual has 60 days to elect continued coverage under COBRA.
Assistance Eligible Individuals Who Did Not Elect Coverage Under COBRA
If an Assistance Eligible Individual who did not previously elect coverage now elects to continue coverage under COBRA, the newly-elected coverage will begin with the first period of coverage beginning on or after February 17, 2009. For most employers with plans that run on month-long plan periods, this will be March 1, 2009.
For purposes of determining an Assistance Eligible Individual's COBRA coverage period, the date of the Assistance Eligible Individual's involuntary termination of employment will still be considered the "qualifying event" under COBRA; the Assistance Eligible Individual's 18-month COBRA coverage period will not start anew as of February 17, 2009, but will, instead, remain the date on which the individual's employment was terminated. For example, if an Assistance Eligible Individual lost his or her job on October 31, 2008, but did not elect COBRA continuation coverage at that time and now chooses to elect subsidized coverage, the subsidized coverage will begin effective March 1, 2009 (assuming that is the first period of coverage that begins after February 17, 2009). However, the 18-month coverage period under COBRA will not restart in March 1, 2009, and continue for 18 months thereafter; rather, it will continue from October 31, 2008, (the date of the qualifying event) and will end April 30, 2010 (18 months after the qualifying event). Recall, again, that the subsidized coverage is only available for a maximum of nine months, regardless of when it is elected. Thus, subsidized coverage that takes effect in March 1, 2009, will last for only nine months (here, December 2009), not through the end of the 18-month continued coverage period.
Assistance Eligible Individuals Who Elected Coverage Under COBRA
Not all Assistance Eligible Individuals declined coverage before the Stimulus Bill took effect. Those who elected to continue coverage under COBRA and have been paying premium costs may seek reimbursement from their employers for all excess premium costs over the 35% subsidy that they paid since their termination. Alternatively, they may seek a credit of that excess premium amount against future COBRA premium payments. As with Assistance Eligible Individuals who previously declined coverage, those who previously elected coverage must be located by their employers so they can be notified of their rights under the Stimulus Bill.
Coverage Options
If an employer offers different insurance plan options to its employees, an Assistance Eligible Individual may now choose to elect coverage under a plan that is different from the one under which he or she received coverage at the time of his or her termination. To do this, the Assistance Eligible Individual must elect the plan change within 90 days after receiving notice of the new subsidized COBRA rights.
Notice Requirements
As stated above, employers must provide new notification by April 17, 2009. Employers may either modify their existing COBRA notices or create new notices. These notices must advise Assistance Eligible Individuals that the subsidy is available and that they have the option to enroll in different plan coverage, if available. In addition, the notices must advise of the obligations of qualified beneficiaries to notify plans of eligibility under another insurance plan as well as the penalty for failure to provide such notice to the plan.
Whom to Contact
Please contact Laura Pfeiffer, Mark Pihart, or Megan Ruwe at Winthrop & Weinstine, P.A., if you have any questions regarding subsidized COBRA coverage under the Stimulus Bill or other COBRA rights and notifications. We are here to help.
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NOTICE: This newsletter is a periodic publication of Winthrop & Weinstine, P.A., and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your legal counsel concerning your situation and any specific legal questions you may have.