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COBRA'S NEW BITE: EMPLOYER
PAID PREMIUMS
"The American Recovery and Reinvestment Act of 2009,”
known as the economic stimulus package, signed by President
Obama on February 17, 2009, requires employers to pay COBRA premiums under certain circumstances. Essentially, employers
are required to pay 65% of a laid off employee's COBRA premiums for up to 9 months. The following is an overview of
the COBRA changes.
Who is Eligible for the Employer-Paid
COBRA Premiums?
COBRA eligible employees (and their
eligible dependents) who were involuntarily terminated between September 1, 2008 and December 31, 2009, for reasons other than for gross misconduct are
eligible for the employer-paid premium.
How
Much Must the Employer Pay?
Prior to the economic stimulus packages, employees paid 100% of their COBRA premiums, up to 102% of the employer
premium. Under the new law, employers must pay 65% of the employee's COBRA premium for group medical, dental
and vision health plan coverage. The employee must pay the remaining 35%. The employer's portion of
the subsidy will be reimbursed by the federal government through a tax refund or credit to be determined by the Secretary
of the Treasury.
Must Employers Notified Employees Terminated Earlier?
The law applies to employees laid off or
terminated as of September 1, 2008. Employers were required to notify these former employees, and their eligible
dependents, of their right to buy subsidized COBRA benefits no later than April 18, 2009. The employees and dependents received
at least 60 days to decide whether to elect to continue coverage with the employer paying 65% of the premiums. Even employees
did not elect COBRA in the past can participate and receive the subsidized benefits this year. However, they must have
left employment during the period of September 1, 2008, to December 31, 2009.
Is There an Income
Limit on the Paid Premiums?
The employer-paid premium is available to
all COBRA-eligible employees laid off between September 2008 and December 2009. However, higher employees
who earn between $125,000 and $145,000 (or between $250,000 and $290,000 for joint filers) will be taxed on a portion of the
employer-paid subsidy. Employees who earn more than $145,000 (or $290,000 for joint filers) will be taxed
on the full amount of the employer premium payment. A higher income individual may elect to waive receipt of the subsidy
and thereby avoid additional income tax liability.
If Multiple Coverage Options are Offered, Can an Eligible Employee Change Options?
Employers
that offer different health plan options may allow individuals eligible for the
employer paid premiums to change coverage options under the group health plan when electing COBRA continuation coverage. To
change plans, the premium for the other coverage must be the same or lower than the individual's existing group health plan
coverage and the lower priced option must provide for full medical coverage, and not merely dental, vision care, counseling,
or referral services or certain treatments provided by an on-site medical facility. This election must be made within
90 days of receiving notice of this option. When Does Eligibility End? The eligibility
period to qualify for the employer paid premium program ends on December
31, 2009, unless Congress extends the deadline. An
individual’s eligibility to receive the subsidy ends after 9 months, or earlier if one of the following events occurs:
(1) COBRA eligibility otherwise expires (COBRA typically lasts for up to 18 months
for employees - up to 36 months for dependents); or
(2) The employee receiving
the employer-paid premium becomes eligible for Medicare or health coverage under another group health plan. If
an employee becomes eligible under another group health plan, the employee can keep the old employer’s COBRA (with the
old employer paying the premium) where the new plan only provides: (a) dental, vision, counseling, or referral services; (b)
the new plan is a flexible spending account or health reimbursement arrangement; or (c) the new plan only consists of on-site
medical services consisting primarily of first-aid services, prevention and wellness care.
An
employee receiving employer-paid premiums must notify the employer when he or she becomes eligible for Medicare or for coverage
under a new group plan. If the employee fails to notify the employer, the employee is subject to a penalty
equal to 110 percent of the employer premium payment.
What Are the Notice Requirements under the New Law?
The law contains several new notice requirements for employers. The
Secretary of Labor has provided model notices incorporating the additional requirements.
Employers must notify employees of the following information:
(1) a description, displayed
in a prominent manner, of the qualified recipient's right to a subsidized premium, including any conditions on this right;
(2) a description of the extended election period for individuals who previously declined COBRA continuation coverage;
and
(3) a description of the qualified recipient's option to enroll in different coverage if the
employer permits such election.
Modified notices describing this new benefit must be timely
given to every employee terminated after February
17, 2009. For eligible employees terminated between September 1, 2008 and February 17, 2009, the
modified notice was required on or before April
18, 2009.
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