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A Stimulating Challenge - What Every Employer Needs to Know about the COBRA Subsidy

The American Recovery and Reinvestment Act (ARRA) of 2009, the stimulus package signed into law by President Obama on February 17, 2009, contains important provisions affecting the workplace. One provision requiring immediate attention by HR departments is a 65 percent COBRA subsidy for individuals who experience an “involuntarily” loss of employment between September 1, 2008 and December 31, 2009.  Here is a primer for employers from the HR and Government Affairs teams at AIM:

Which employers must comply with the COBRA requirements?

Virtually all Massachusetts employers must comply.  The subsidy pertains to COBRA, the federal insurance continuation law that applies to employers of 20 or more employees, as well as to any state continuation law such as Massachusetts Mini-COBRA, which covers employers of between 2 and 19 employees. 

What is the COBRA subsidy?

Employers must subsidize 65 percent of the COBRA premium amount for eligible qualified beneficiaries.  The employer will then be able to deduct the amount of the subsidies from its next remittance of federal payroll taxes.  Qualified beneficiaries will pay the remaining 35 percent of the required COBRA premium.

When does the COBRA subsidy begin?

The subsidy applies to coverage periods beginning March 1, 2009. Premiums for coverage prior to March are not subsidized.

When does the COBRA subsidy end?

The maximum length of the subsidy is nine months, but eligibility will end upon the occurrence of certain events:

• The date on which the qualified beneficiary becomes eligible for coverage under another group health plan;
• At the end of the maximum coverage continuation period as established by COBRA; or
• When coverage is terminated for non-payment of premium as established by COBRA

Which employees are eligible to receive a COBRA subsidy?
Qualified beneficiaries, employees and/or dependents, are eligible for the subsidy if they lose coverage under the group health plan between September 1, 2008 and December 31, 2009 and if the qualifying event was the result of the employee’s involuntary termination.  The term “involuntary termination” has not yet been fully defined.  It is expected that the Department of Labor will issue guidance on this definition.

Qualified beneficiaries are not eligible for the subsidy if their federal adjusted gross income exceeds $125,000 ($250,000 for a taxpayer filing a joint return).  It is not yet clear how the income level is to be verified.

What must your HR Department do to ensure compliance with this Act?

Employers should immediately determine which individuals are eligible for the subsidy. The list should include all qualified beneficiaries, including dependents, who became eligible for COBRA on or after September 1, 2008 due to an employee’s involuntary termination.  Next steps include:

1. Notify those who accepted COBRA, and whose coverage remains in force, about the availability of the subsidy beginning March first. Include information and instructions on the process they should follow.
2. Prepare and send notices by April 17, 2009 – 60 days following enactment of the law – to offer a special 60-day enrollment period to:

• Those who declined continuation coverage during their initial election period; and
• Those who elected COBRA and subsequently cancelled their coverage.

If these individuals elect COBRA, their effective date of coverage will be March 1, 2009.

3. Revise COBRA notices for qualifying events that occur between March 1, 2009 and December 31, 2009 as a result of involuntary termination to include information about the subsidy program.

Other Key Points for Employers:

• The subsidy program does not change/extend an individual’s continuation period under the applicable state or federal law. It simply provides a subsidy for up to nine months of that period.
• The Departments of Labor and Treasury have been charged with issuing model notices and procedures – many questions remain unanswered at this point.
• Employers will be required to provide reports to the government to confirm individuals’ eligibility for the subsidy and as back-up for the payroll tax credits. The format and mechanics have not yet been defined.
• Many employers require payment of COBRA premiums on the first day of the month for that month’s coverage and March 1 is just six days away. For subsidy-eligible individuals who pay the entire premium before employers are able to get notices out, the amount they pay in excess of 35 percent must be credited toward their portion of the premium for future months. 
• The Massachusetts Division of Unemployment Assistance is currently making decisions about how the subsidy program will impact their management of the state’s Medical Security Program that pays or subsidizes the cost of health insurance for certain individuals who are eligible for Unemployment Insurance benefits. While not yet finalized, it is likely that their course of action will result in more people accepting COBRA continuation through the employer. AIM is in touch with key staff at the Executive Office of the Department of Labor and Workforce Development and will keep you informed on this issue.

Look to AIM as your source of information on this developing issue. We will issue bulletins as needed and provide follow-up information in the HR Edge and in our Friday electronic communication, Business Weekly. In the meantime, visit our  Stimulus Resource Page for breaking news. 

In addition, join us at one of the six (6) AIM seminars offered around the state the week of March 9th. We will cover the COBRA subsidy program in great detail, including all employer obligations, model notices, timetables, checklists, etc. We will also discuss a number of other HR-related provisions of the ARRA. We’ll also do a quick review of key COBRA and Mini-COBRA concepts.