COBRA Provisions In Federal Stimulus Update
March 6, 2009
The federal stimulus act contained provisions which are a substantial revision to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), for the first time alleviating some of the financial burden on former employees who elect to continue health coverage under COBRA, while creating new rules and responsibilities on the separating employer.
The federal law requires immediate action on the part of sponsors of single-employer and multiemployer group health plans, group health insurers and third party administrators to implement the provisions within the act.
The stimulus bill provides for a subsidy of 65% of the required COBRA premium for eligible individuals for a maximum of 9 months, or earlier until the individual becomes eligible for coverage under a group health plan. The premium subsidy is phased out for individuals with adjusted gross income of between $125,000 and $145,000 for single filers; and $250,000 to $290,000 for joint filers.
The subsidy is credited against the payroll taxes of the entity receiving the 35% payment from the COBRA participant. For multiemployer group health plans, the plan will receive this credit. For a group health plan that is not a multiemployer plan and is self-insured, the employer will be entitled to the credit. For a group health plan that is not a multiemployer plan and where some or all of the coverage is provided by insurance, the insurance company providing the insurance will be entitled to the credit.
The Act requires plan sponsors and third party administrators to modify their existing initial COBRA notices and qualifying event/election notices, or provide separate, supplemental notices to all individuals who become (or became) entitled to elect COBRA continuation coverage during the period beginning on September 1, 2008 and ending on December 31,2009. The notice must describe the subsidy and, if applicable, the right to change coverage.
The US Department of Labor’s dedicated web page to the COBRA provisions in the stimulus, includes sample notices and details on the COBRA provisions; the IRS has posted its guidance on for employers and individuals as well.