Volume 8, Issue 5
March 19, 2009
The Department of Labor issued today model notices to assist employers in meeting the new COBRA obligations imposed by the American Recovery and Reinvestment Act of 2009 (ARRA).
The notices can be obtained at: http://www.dol.gov/index.htm.
President Obama signed the ARRA on February 17, 2009, which imposes important new COBRA obligations for employers. In relevant part, the ARRA is intended to assist employees who lost their jobs during the recent economic downturn by providing a federal government subsidy of COBRA premiums for up to nine (9) months and a second chance to elect COBRA coverage for those individuals who either did not elect COBRA when initially offered or who elected COBRA but then discontinued such coverage. Accordingly, it is important that employers understand these new obligations and work with their health plans and/or COBRA administrators to meet the added requirements. To the extent that an employer utilizes the services of a third party administrator to fulfill the employer's COBRA obligations, many of these new requirements, particularly the issuance of new COBRA election notices, will be the primary responsibility of such COBRA administrators.
The COBRA premium subsidy is applicable only to individuals who lost coverage due to an involuntary termination of employment between September 1, 2008 and December 31, 2009 and who elect COBRA coverage during the original or special election period.
The subsidy granted by the ARRA is 65% of COBRA premiums for up to nine (9) months. As a result, a group health plan can only charge eligible individuals 35% of the COBRA premium, and the employer must pay the remaining 65%. The employer may then seek reimbursement from the federal government by taking a credit against payroll taxes. For guidance on how to obtain the credit, see http://www.irs.gov/newsroom/article/0,,id=204708,00.html.
The subsidy begins at the next COBRA coverage period beginning after the date of the ARRA. For plans that use calendar months, that date is March 1, 2009. Although the subsidy applies to employees involuntarily terminated after September 1, 2008, it is not retroactive. As such, for employees involuntarily terminated between September 1, 2008 and February 28, 2009, the subsidy will be paid for nine (9) months following March 1, 2009.
The subsidy ends at the earliest of the following events: (1) the date the COBRA beneficiary becomes eligible for other group health plan coverage; (2) nine (9) months after the date the subsidy began; or (3) the end of the maximum COBRA coverage period.
Special COBRA Election Period
The ARRA also provides individuals with a second opportunity to elect COBRA coverage. Specifically, individuals who lost coverage due to involuntary termination from September 1, 2008 through February 16, 2009, and who either did not elect COBRA or elected and then dropped such coverage, now have a second chance to elect COBRA coverage at the reduced 35% rate.
All COBRA election notices must now include information regarding the availability of the subsidy. In addition, the ARRA imposes notice obligations upon employers for all qualified beneficiaries who experienced a qualifying event from September 1, 2008 to December 31, 2009, even those whose loss of coverage was not related to an involuntary termination. Accordingly, employers and/or their COBRA administrators should begin using the DOL's General Notice (Full Version) Form http://www.dol.gov/ebsa/COBRA generalnoticefullversion.doc for those individuals who lost coverage under the group health plan as of February 17, 2009 or later.
Individuals who had a qualifying event between September 1, 2008 and February 16, 2009 and who either did not elect COBRA or elected but then discontinued COBRA must be provided a revised COBRA notice of their new election rights. This notice, entitled Notice in Connection with Extended Election Periods, must be provided by April 18, 2009 and can be found at: http://www.dol.gov/ebsa/COBRAextendedelectionperiodnotice.doc.
For those individuals who experienced a qualifying event on or after September 1, 2008 and who are currently on COBRA, the DOL's General Notice (Abbreviated Version) should be sent to these individuals: http://www.dol.gov/ebsa/COBRAgeneralnoticeabbreviatedversion.doc.
As information regarding these new COBRA obligations continues to develop, KZA will continue to monitor this area and provide relevant updates. In the meantime, for more information please visit: http://www.dol.gov/ebsa/COBRA.html.
Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.