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COBRA Requirements 2009
COBRA Premium Subsidy
The employee pays 35% of the COBRA premium. The remaining 65% is subsidized by the employer for self-funded plans, or the insurance company for fully insured plans, or the plan for multiemployer plans. Individuals with income exceeding $145,000 per year, and couples with income exceeding $290,000 per year, are not eligible for the subsidy. The subsidy applies to premiums paid for periods of coverage beginning on or after March 1, 2009.
Eligible Coverage
All group health plans subject to COBRA are eligible for the subsidy, including medical, dental, vision, and HRAs. Health FSAs are not eligible for the subsidy.
Duration of Subsidized COBRA Coverage
The subsidy will last for a maximum of nine months, but will end sooner if the individual becomes eligible for coverage under another group health plan or Medicare. (An individual is not considered eligible if he/she is subject to a waiting period under the other group health plan.) The individual must notify the group health plan in writing when he/she becomes eligible for other health coverage. The subsidy period does not extend the period of COBRA coverage that would otherwise apply to an individual. In most cases, a total of 18 months of COBRA coverage is available, consistent with current law.
Special Election Period
A 60-day special election period will be given to individuals who were eligible to elect COBRA due to an involuntary termination during the September 1, 2008 through December 31, 2009 time period, but did not elect COBRA. This special election period also applies to qualified beneficiaries who elected COBRA coverage during this period but then discontinued coverage.
New COBRA Coverage Option
Employers may choose to allow an eligible individual to change his/her health insurance plan option to any option offered by their employer to active employees. The new option must have the same or lower premiums as the option the employee had been enrolled in at the time of termination. The election to change plans must be received from the individual within 90 days of the COBRA election notice.
Payroll Tax Credit
Employers may recoup their 65% share by claiming a tax credit against wage withholdings and FICA payroll taxes. If the employer's claim for COBRA subsidy payments are greater than the amount of wage withholdings or payroll taxes, the employer will be reimbursed for the excess amount. The IRS and the Treasury Department will be providing details on this process.
Income Treatment
The premium subsidy will not be considered taxable income or additional income when determining eligibility for any federal or state public benefit program.
New COBRA Notices
The Department of Labor (DOL) will be drafting new model COBRA notices and other rules needed to implement the new legislation. The notices will be available by March 17.
Employer Responsibilities
Employers must first identify employees who were involuntarily terminated on of after September 1, 2008 and were entitled to COBRA coverage. They will then need to send these former employees and their dependents a new COBRA election notice (using the model DOL form) informing them of the premium subsidy and that they will be given a new opportunity to enroll in COBRA with subsidized payments. This new enrollment period will end 60 days after notification. For fully insured plans, the employer will need to help the insurance company identify individuals who were involuntarily terminated from their jobs.
Employers must keep track of the amount of COBRA continuation coverage premium they paid for each eligible individual and will need to report this information to the IRS, most likely on Forms W-2. Details on this process will be provided as they become available.
This is provided for informational purposes only and does not constitute legal advice. This contains only a summary of the applicable legal provisions and does not purport to cover every aspect of any particular law, regulation, or requirement. Depending on the facts of any situation, there may be additional or different requirements. Please use this as a guide and not as a definitive description of your compliance obligations.
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