ALERT - Premium Assistance for COBRA BenefitPrint PDFShare
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009, also known as the economic stimulus law. One way the new law is intended to help individuals affected by the current economic crisis, is by making health care continuation benefits more affordable to employees who suffer an involuntary termination of employment between September 1, 2008 and December 31, 2009 ("assistance-eligible employees").
Under the new law, assistance-eligible employees may be eligible for assistance in meeting their COBRA premium obligations for up to nine months. During the period of premium assistance, the employee must only pay 35 percent of the premium. Employers will be required to pay the remaining 65 percent of the premium, but the federal government will reimburse employers for the 65 percent of premium assistance through payroll tax credits. The period of premium assistance will be shorter than nine months if an employee becomes eligible for other group health plan coverage, or the COBRA coverage period would otherwise end during the nine-month period.
While the concept of premium assistance may seem fairly straightforward, administering these new provisions will require employers to change many of their COBRA notices and practices, as well as affect payroll tax obligations. Employers should begin taking the following steps in response to the new law.
- Determine who became eligible for COBRA since September 1, 2008 - All employees who became eligible for COBRA on or after September 1, 2008, must receive a notice of the availability of premium assistance. While only employees who were involuntarily terminated would be eligible for the premium assistance, the notice must be sent to all employees who became eligible for COBRA during this period, even those that became eligible for reasons other than involuntary termination. This notice can be incorporated into an existing COBRA notice, or added to the COBRA package as a supplemental notice.
- Provide special notices - In addition to providing notice to all employees who became eligible for COBRA on or after September 1, 2008, of the availability of premium assistance, assistance-eligible employees must also be notified of the special rights that apply to them. Assistance-eligible employees that are currently covered under COBRA must be notified that they are only required to pay 35% of the COBRA premium for the period of premium assistance. Assistance-eligible employees that are not currently covered under COBRA must be notified that they now have a second opportunity to elect COBRA. The Department of Labor will issue model notices by March 19, 2009, but employers may choose to send these notices out earlier so that premium assistance may begin as soon as March 1, 2009. The notices must be sent by April 18, 2009.
- Modify payroll tax reporting procedures - In order for an employer to be reimbursed for the 65 percent of premium assistance, employers will need to include a list of their assistance-eligible employees and the amount of premium assistance paid by the employer as part of its payroll tax reporting obligations. Form 941 is currently being revised to reflect this. It is also likely that W-2 reporting obligations may also be modified for employees receiving premium assistance.
- Evaluate most cost-effective way to provide subsidized COBRA premiums - Even before the new law, many employers subsidized COBRA premiums for a period of time for certain terminated employees. Because employers are now eligible for reimbursement from the federal government for premium assistance to assistance-eligible employees, employers should evaluate the most cost-effective way to provide a COBRA subsidy for involuntarily terminated employees.
For more information, please contact a member of Briggs and Morgan's Employee Benefits Group.