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Dealing with the new COBRA requirements in the federal stimulus package

Background

Since mid-February, we have been hearing about new temporary COBRA obligations coming from the President’s stimulus package, the American Recovery and Reinvestment Act of 2009 (ARRA). We’ve seen articles and newsletters about it but haven’t heard much about the extra work and the potential cash-flow issues for businesses. The purpose of this article is to outline the new federal COBRA obligations for employers of 20 or more employees, and obligations under NYS continuation for employers under 20 employees. We’ll also suggest some steps to take to comply without the legalese. If you have legal questions or an unusual situation beyond this outline, you should seek appropriate legal advice.

In a nutshell, these new obligations require employers or others who are actually administering an insurance plan to temporarily subsidize 65 percent of the COBRA insurance premiums for any employee and qualified family members continuing their coverage through the federal COBRA or NYS continuation programs. It would apply to employees who involuntarily lost or involuntarily loose their jobs from September 1, 2008 to December 31, 2009.

For employers subject to federal COBRA (20 or more employees), the new obligations require the employer to pay 65 percent of the monthly cost and then get a tax credit, with the employee or other family member paying the other 35 percent of the cost.

For employers of less than 20 employees subject to NYS insurance continuation, the employee or other family member pays 35 percent of the cost but for this temporary subsidy program, the insurance carrier providing coverage under the group insurance program will get the tax credit. Whoever has been informing employees about insurance continuation will inform employees about this special program as well.

This subsidy arrangement will begin on March 1, 2009 and last a maximum of nine months or end earlier if the former employee or family members become qualified to participate in another insurance program. They don’t have to actually participate, just be qualified to join another plan, for example, through a spouse’s insurance plan or a new employer’s plan if the employee has a new employer.

Employers or others administering the COBRA or continuation plan will then be able to recover the premium subsidy paid by claiming a credit on the future payroll taxes paid through submission of the IRS Form 941 which has been modified by the IRS for this purpose. After subsidization of an employee or family member for nine months, the responsibility for payment of the full COBRA or NYS continuation insurance premium returns to the responsibility of the employee or family member for the remainder of the COBRA continuation period.

Action

Since there is a look-back to September 1, 2008 required by ARRA, here are some steps to take now:

If any employees who were involuntarily terminated since September 1, 2008 declined COBRA or continuation participation or started it and dropped it, you must contact them and offer them a special 60 day enrollment period. During this special enrollment period, they may enroll or re-enroll in COBRA or continuation and be eligible for the subsidy coverage beginning March 1, 2009. It will last a maximum of nine months. Regular COBRA or continuation coverage at the full unsubsidized cost to the employee will continue after the end of the nine month subsidized period. Use the new department of labor subsidy notification form to inform them of this new entitlement and do it no later then April 18, 2009. For employees who leave your employment for any reason after February 17, 2009 until December 31, 2009, you should also use the new department of labor subsidy notification form even if it appears that they are not eligible.

Next:

Finally:

So, get started now and observe that April 18th deadline. Call The Business Council’s Resourceline at 800.332.2117 if we can assist you along the way to complying with this new temporary COBRA subsidy, or with any other HR related issue or question.