Stimulus’ COBRA Premium Subsidy Puts Burden on Employers

The American Recovery and Reinvestment Act of 2009 (ARRA), has been signed into law by President Obama.  ARRA creates a federal subsidy of the premiums payable by certain terminated employees for continuation of coverage under employer-sponsored group health plans pursuant to the requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).  What does this really mean for employers?

It means employers, go back to September 1, 2008. Under ARRA, employers have an obligation to inform employees who experience an involuntary termination of employment (but not for reasons of gross misconduct) from September 1, 2008, to December 31, 2009, that they automatically qualify for a 65% subsidy for COBRA premiums for up to nine months after their date of termination or layoff.  So, employers get your ARRA notices ready.  Employers have an affirmative obligation to identify every employee who has been laid off since September 1, 2008, and send them an ARRA notice.

Below are some of the points your ARRA notice should include:

  • A description of the former employee’s automatic qualification for the subsidy, subject to the employee ability to meet the subsidy’s income requirements.
  • The forms necessary for establishing eligibility for the subsidy.
  • Pertinent contact information for the COBRA plan administrator or anyone else who can assist former employees with access to the subsidy.

Although it may not seem like much, there is a small burden placed upon employees who qualify for the subsidy. Covered individuals who become eligible for coverage under another group health plan or become eligible for Medicare coverage before the expiration of the nine month period must notify the health plan providing COBRA in writing or face a 110% penalty of the subsidy received. Make sure you add that point to your ARRA notice.

13 thoughts on “Stimulus’ COBRA Premium Subsidy Puts Burden on Employers

  1. The impact on employers who do not pay taxes is immense, since the tax credit will have no offsetting benefit. That includes local governments, hospitals, United Way, Boy Scouts, Girl Scouts, charities, etc.

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  2. Would this be retroactive for COBRA payments already paid. My neighbor was laid off from his job and bought three months of coverage. Can he be reimbursed for what he had already paid?

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  3. In response to the comment of William Kerns, tax exempt organizations do not pay income taxes but most of them do withhold employment taxes and pay the employer’s share of FICA and Medicare taxes. The COBRA subsidy is recovered by offsetting the employer’s obligation to deposit employment taxes.

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  4. In response to the comment from tadee, the COBRA subsidy is effective for COBRA premiums beginning with March 2009 for those qualified beneficiaries who began COBRA benefits before March.

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  5. My daughter was laid off mid-Dec 2008 (lack of work). She did not take COBRA but decided to get insurance on her own due to the cost. Since then she has been denied coverage bacause of an existing condition. She has not received any notification from her employer. Is she eligible for COBRA and, if so, what action should she take.

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  6. What happens if an employer can’t afford to make the subsidy payments? They used to have 40 people, and now they’ve laid off all but 2 or 3 people and want to keep those 2 or 3 on insurance. What rights does the small employer have in that case?

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  7. Question. My husband was just informed that the end of the month he and his fellow workers and going to be out of work by the end of the month. So the health insurance will end then as well. I asked about Cobra and the 65% and the office said that in the state of Delaware they didnt honor it. Is that true? I think they are trying to get out of it. Anyone have any ideas? Thanks

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