Update Dec. 16: House Passes COBRA Subsidy Extension and Expansion
You’re probably well aware by now that the $787 billion economic stimulus package signed by President Barack Obama this week will provide many out-of-work employees and their families with a reduced rate on continuing health care coverage under COBRA. Because the stimulus plan was adopted so quickly in Congress, it has been difficult to learn and understand the details. Here’s an outline of some of the major provisions of the stimulus package that relate to the COBRA subsidy.
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What: The stimulus bill provides for a subsidy of 65% of what the eligible person (laid-off employee, spouse, or child) must pay to continue health coverage under COBRA. The subsidy can be applied to any health coverage except health flexible spending account coverage offered through a cafeteria plan. There are recapture provisions for certain highly compensated employees accepting the subsidy. The recaptures are phased in starting with incomes of $125,000 per year for individuals and $250,000 for couples filing joint returns.
Who: To be eligible for the subsidy, the covered employee must have involuntarily lost his job between September 1, 2008, and December 31, 2009. An employee fired for gross misconduct, however, can’t get the subsidy. Covered spouses (as determined per federal law) and children (as determined under the plan) of covered employees can retain COBRA coverage and obtain a subsidy. There are provisions for notifying those who lost their jobs before the February 17, 2009, enactment date of the stimulus package (and their spouses and children) and either didn’t sign up for COBRA or did sign up but let coverage lapse. They have a second chance and 60 days to sign up for subsidized COBRA.
When: Employers have 60 days from the date the stimulus package was enacted (February 17) to notify covered employees involuntarily terminated between September 1, 2008, and February 16, 2009, of their rights to elect COBRA at the subsidized rate. Employees have 60 days from receipt of the notice to elect COBRA. Subsidized coverage begins with the first period of coverage on or after February 17, usually March 1, but the COBRA period itself dates from the qualifying event.
Employees terminated on or after February 17 and before December 31, 2009, will receive a COBRA continuation notice that includes information specific to the subsidy and spelled out in the stimulus bill.
The COBRA subsidy lasts up to nine months, ending earlier if the employee becomes eligible for Medicare or other qualifying group health coverage. Even if the subsidy ends, the employee may retain COBRA coverage, at the full rate, for any COBRA time remaining.
How: The person receiving the subsidy pays the nonsubsidized portion of the COBRA premium to her former employer, health plan, or insurer, as the case may be. That entity “covers” the federal government for the subsidy amount until the government reimburses it through credits against payroll taxes.
In addition, employers may — but don’t have to — allow those eligible for subsidized COBRA payments to choose health coverage that differs from what they had when their qualifying event occurred.
At the most basic level, employers will need to first identify everyone in their organization who is or was eligible for COBRA through an involuntary termination of employment that occurred between September 1, 2008, and February 16, 2009, who hadn’t elected COBRA as of the enactment date or who elected it but lost coverage. Also include spouses and children covered at the time of the qualifying event within those dates but not covered now. These persons will be entitled to a special election period. Coverage dates may need to be adjusted depending on when each person’s qualifying event occurred. Plan administrators must work with their COBRA administrators to tweak systems to accommodate this.
In addition, employers should decide if they wish to offer those eligible for subsidized COBRA the option of electing different coverage and whether the employer wishes to develop its own COBRA subsidy notices to employees or wait for the DOL to issue model notices. (The stimulus package requires it to do so within 30 days of February 17.)
The Internal Revenue Service (IRS) has set up its own Web page, with information for employers on administering the COBRA subsidy and obtaining credits against payroll taxes. Employers should use the updated Form 941, Employer¹s Quarterly Federal Tax Return, to report their COBRA premium assistance payments. The form and instructions are available on the Web page, along with a link to a Q & A page.
There are many more details your organization needs to consider and act on, so you’ll need to work with experienced benefits counsel, your providers, and administrators. For a more detailed summary of the COBRA subsidy check the March issues of Benefits & Compensation Law Alert.
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Does the stimulus also apply to small groups with coverage under Colorado continuation of insurance (plan same as Cobra, but for groups under 20)?
The consensus is that the stimulus subsidy applies to state mini-COBRA programs that provide benefits and have coverage requirements similar to COBRA. The definition of “COBRA Continuation Coverage” under the Act means continuation coverage under ERISA, the Public Health Service Act, or 8905a of title 5, United States Code, or “under a State program that provides comparable continuation coverage.” Colorado’s health continuation program for employers of less than 20 employees would satisfy those requirements.
Why is it that large unions are not participating in the subsidy program, do certain companies have the choice not to participate??? How can we get help with cobra if the union tells us they are not participating????
My employer is terminating me as of March 31, 2009. However, my severance package includes the option of continuing my health care costs at current employee rates for up to one year, which is about $80/month. After one year I can continue on COBRA at over $550/month. Will I still receive the subsidy if I need to retain my benefits under COBRA as of March, 2010?
Millions of Americans who lost their jobs prior to September 1, 2008 could not afford Cobra. Millions more elected Cobra but have now depleted their resources and can not continue on. Still millions more with pre-existing conditions who rely on cobra to bridge the 18 month gap between their former employers insurance and their state’s high risk insurance pools are struggling to pay their premiums every month to prevent being locked out of insurance permanently.
Please join us in asking Congress and the Obama administration to eliminate the arbitrary September 1, 2008 cut-off date and 9 month limitation of assistance by signing our petition at ipetitions under Cobra Reform and telling your friends about our efforts.
The subsidy does not cover state continuation coverage for the majority of states. The definition stated for COBRA Continuation Coverage stated by the previous poster is correct. However, the law also contains a definition for “State.” Most states are not included in the definition.
Or, if we are to interpret state continuation as being covered, how much effect or deference should we give to a state agency’s interpretation of how to implement the subsidy? For example, we have 3 different state continuation laws. The state agency is interpreting that the subsidy applies to one but not all three. This would mean that spouses and children cannot get the subsidy? The federal law says individuals are to pay insurers and the insurer gets the tax credit, but the employers still need to be the one to provide the notice? That doesn’t even make sense. Then, if an individual has a complaint regarding state continuation and the subsidy, the U.S. DOL has to interpret the various state law?
I was laid off 2/4/2009 My employer has not even offered cobra yet how can I participate in this new Cobra Stimulus Package? I am in Illinois. This is the first I am here of this please advise. We had more than 20 employees less than 30.
Thank you much appreciated.
We are a City government and do not pay Federal taxes. What do we need to do in order to recover the cost of the COBRA subsidy?
I operate a small business (LLC). I don’t think there is much of anything in the stimulus package for me. But… if I were to have to lay off my husband, who works for me, would the government pay the 65% share of his COBRA? Or are spouses ineligible? I am the sole member of the LLC, my husband does not share ownership or stock at all. My three dependent children, as well as myself, are also on the (high-deductible) insurance plan. Your thoughts?
Does the subsidy apply to those who left there job due to illness?
Does this apply to New Jersey State continuation benefits for small businesses? New Jersey State continuation benefits is for companies with less than 20 employees.
I was laid of on March 25,2009. Company insurance ended on 3/31/09. I can elect Cobra for $48 per month for 3 months. After it is supposed to go to $439 per month. Will I be able to pay the 35% for the following 9 months or will it be 6 months. The company that worked for did not know anything about this when I ask them.
I went on Family Medical Leave (FMLA) to care for my spouse who is battling cancer. When my 12 weeks of unpaid leave was up I was unable to come back to a full time status with my employer. There were no part time positions available so I was asked to resign. Do I qualify for assistance with COBRA?
I am a seasonal employee and purchase a self-funded company health insurance policy for the year. I am now being told to sign the cobra paper and for that I will receive a few dollars a month vs. what I usually pay in advance tax-free. Is this correct? Will my renewed company policy cover my pre-existing or do I lose? I thought cobra stimulus reduced payments to 35% for the employee not just a tax benefit for the company???
I am currently under the Illinois State Continuation Coverage as I was laid off from my small business in Feb. 2009. Thus I will be paying 100% of my premium and will still be covered until the end of November, 2009. From what I hear, the stimulus package that reimburses employers 65% of the laid-off individual’s monthly premium will NOT be effective for State Continuation. Is this indeed true for Illinois State Continuation? And if so, WHY????? I have Type 1 Diabetes and there are hardly if no financial aids for us. Type 1 Diabetes is in fact a disability. I just want to be able to afford my insulin in order to live. And if indeed State Continuation Coverage in Illinois is not part of the government subsidy, then the state and the government are doing nothing to help someone like me.?? I would love to be convinced otherwise instead of getting the butt of every situation.
I was recently laid off a month ago and was told I would have to pay $129 a month for cobra. I still think this is really high since I have to pay for percriptions as well, etc….I was making 15.87 hr so don’t really know how this figure came to be. Was trying to get a second opinion and thought I would write a quick email to you and find out if this amount is correct? Appreciate your response. Thank you
if someone is laid off, it is nice for the nine months, but it should definitely be for the entire 18 months-nine months helps, but then you cannot afford to pay the 100% required
My daughter was just laid off, July 2010, is there still a stimulas for Cobra?