Newsletter



INDUSTRY NEWS UPDATE

FEBRUARY 2009


$787 billion stimulus package mandates employer action on COBRA assistance subsidies effective March 1, 2009:
President Obama signed the new American Recovery and Reinvestment Act (ARRA) into law on February 17, 2009. ARRA provides a partial subsidy of COBRA and state mini-COBRA premiums to qualifying “assistance eligible individuals” (AEIs), their spouses and dependents. Premium assistance for these individuals begins on or after February 17, 2009 and lasts through December 31, 2009.

AEIs are qualifying COBRA beneficiaries who:


  • Have become eligible for COBRA continuation coverage on or after September 1, 2008 (and before December 31, 2009).
  • Qualified for COBRA due to involuntary termination for reasons other than gross misconduct.

COBRA premium assistance is not available to individuals whose adjusted gross incomes exceed $145,000 annually ($290,000 annually for joint-filers). For individuals whose annual adjusted gross incomes fall between $125,000 and $145,000 ($250,000-$290,000 for joint filers), COBRA subsidies are phased out through added taxes. Employees subject to these taxes can permanently waive their rights to a subsidy and pay the full COBRA premiums.
The ARRA applies to medical, dental, vision and employee assistance programs. It does not apply to Medical FSA accounts and we are still awaiting clarification on whether or not it applies to HSAs. As soon as we receive a definitive response on this, we will immediately update you.

How the COBRA subsidy works:

Premium subsidies are available to AEIs for up to nine months of their maximum COBRA coverage period. Subsidy amounts are based on the actual cost of COBRA premiums that the AEIs would otherwise incur.

Assistance eligible individuals first contribute 35 percent of the monthly premium cost. You, the employer, then pay the remaining 65 percent and submit the payment to your insurer directly. The federal government will reimburse you for your contribution amount through a credit or refund of an overpayment of payroll taxes through the 941 Filing. The IRS will release an updated Form 941 that reflects this tax credit soon.


If elected, subsidized COBRA coverage for the AEI starts the first of the month. His or her eligibility for COBRA subsidies will terminate on the earlier of:

  • Nine months following their his or her date of COBRA election/re-election
  • An offer of any new employer-sponsored health care coverage
  • Medicare eligibility

    What do employers need to do:

    COBRA subsidies will be available starting March 1, 2009 so you, the employer, must take the following actions promptly.


    1. Notices to re-enroll for current COBRA recipients:
      Qualified beneficiaries who are currently on COBRA must make a new election to establish premium assistance under ARRA. You must send these individuals COBRA re-election notices with their new temporarily subsidized rates.
    2. Extended election period for AEIs who didn’t initially elect COBRA:
      The ARRA applies to all assistance eligible individuals whose dates of involuntary termination extend back to September 1, 2008. These individuals who did not initially elect COBRA or have allowed their COBRA coverage to lapse now have a special extended COBRA election period beginning February 17, 2009 and ending 60 days after they receive an employer-provided notice.
      You, the employer, must track down all employees whose coverage has been terminated since September 1, 2008 and send them the newly required subsidy availability and election notice.

    3. Finally, you must notify insurers of who is partaking in the new subsidized COBRA coverage.


    Please note that if you fail to provide timely notification (i.e. within 60 days of the “Act” becoming a law, by mid-April at the absolute latest) to ALL assistance eligible individuals, you are subject to the standard COBRA penalties under ERISA of up to $110 per-day. You also may be subject to excise taxes of $100 per-day, per-notice under the Internal Revenue Code.

    Can your company afford not to send all assistance eligible individuals timely notification?


    The Department of Labor has been directed to update notices within 30 days of ARRA enactment, by March 17, 2009 at the absolute latest. However, if you handle your company’s COBRA in-house, you are also required to have an updated General Notice by March 17 to reflect changes to compliance brought about by ARRA.
    At Universal Benefit Plans, we want to make certain all of our clients are fully up-to-date with ARRA and that they have the tools necessary to provide AEIs with as timely notification as possible. If you have any questions about the ARRA subsidy, please call us at 617-859-1441.
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