Subsidy, Tax Credit and Reimbursement
Under the Act, eligible individuals who elect continuation coverage under COBRA need only pay 35% of the cost of the COBRA premium, with the employer initially picking up the remaining 65%. In most cases not involving a multi-employer group health plan, the eligible individual pays the reduced premium to the employer and the employer remits that amount plus the remaining amount of the premium to the insurer. The employer then is entitled to a credit against its payroll taxes for the amount of premiums it paid on behalf of eligible individuals. If the credit exceeds the amount of the taxes, the employer is then reimbursed by the federal government for the remainder.
The premium subsidy is available to an eligible individual for a maximum of nine months after election of COBRA coverage. The subsidy will end earlier if the individual becomes eligible for coverage under any group health plan (even if the employee does not elect such coverage), becomes eligible for social security benefits, or if COBRA coverage expires under any other existing COBRA provision.
Definition of Eligible Individuals
An individual is eligible for the COBRA premium subsidy if he or she is involuntarily terminated between September 1, 2008 and December 31, 2009, is otherwise qualified to be a COBRA beneficiary, and timely elects continuation coverage. Individuals who were involuntarily terminated on or after September 1, 2008, but who have not yet elected COBRA coverage as of February 17, 2009, are still entitled to make such an election if they do so within 60 days of being notified of their eligibility for the premium subsidy.
Plan administrators of group health plans, which in many cases are the employers sponsoring the plans, must provide notification of the premium subsidy to all COBRA eligible employees who lost or who will lose coverage due to involuntary termination between September 1, 2008 and December 31, 2009. This means that, in addition to providing notice of the subsidy rights to employees who are terminated after February 17, 2009, employers must also track down former employees who were involuntarily terminated and otherwise eligible to elect COBRA at any time from September 1, 2008 to February 17, 2009, provide them with notice of their subsidy rights under the Act, and, if the former employee did not previously elect COBRA coverage, offer a second opportunity to elect subsidized COBRA coverage. The employer must send the notice to all such former employees within 60 days of February 17, 2009. The Labor Department will be providing model notices within 30 days from February 17, 2009. Employers will want to tailor the notices for their individual use.
An employer may offer eligible individuals the option to switch to any health plan option the employer offers with premiums equal to or lower than the individual’s coverage at the time of the qualifying event. An employer may also require eligible individuals to remain on the plan that covered them while they were employed.
How to Prepare
Employers need to revise their COBRA notice forms to comply with the notice provisions of the Act. They also need to promptly identify former employees who were involuntarily terminated between September 1, 2008 and February 17, 2009, so that the appropriate notices and opportunity to elect COBRA can be provided to them within the 60 day time period discussed above. Employers will also need to modify payroll tax reporting and processing to ensure that they receive the credits and reimbursements to which they are entitled.
Compliance with this new legislation will require careful attention to detail. If you would like assistance with compliance, including drafting revised COBRA notices, or if you have any other employment-related questions, please contact Meg Vergeront at 608.259.2663 or firstname.lastname@example.org.