COBRA Subsidy Update – ARRA of 2009 March 13, 2009Posted by Austin Baker in COBRA, employee benefits.
Tags: ARRA, COBRA, Subsidy
Are you ready? Effective March 1st Uncle Sam will now pay 65% of COBRA Premiums. You have until April 17th to issue new COBRA notices to all your employees and employees involuntarily terminated all the way back to September 2008. This also applies to small business owners with 2-19 employees in specific states with ‘mini COBRA” laws.
The duration of COBRA subsidized coverage will pay a maximum of 9 months subsidy for COBRA coverage. Subsidy ends sooner if individual becomes eligible for coverage under another group health plan or Medicare. Total of 18 months of COBRA coverage is available in most cases, consistent with current law.
The amount of subsidy follows the following format. Individuals pay 35% of COBRA premium and 65% of premium
is subsidized by employer (which the employer may then claim as a credit against wage withholdings and payroll taxes). The subsidy phases out for taxpayers with modified adjusted gross income exceeding $145,000 (or $290,000 for joint filers) and is reduced proportionately for taxpayers with adjusted gross income between $125,000 and $145,000 ($250,000 and $290,000 for joint filers).
There is a special election period? There is 60-day special election required for those eligible for the subsidy if they had not previously elected COBRA. Special election opportunity also applies to a qualified beneficiary who elected
COBRA coverage but who is no longer enrolled on the date of enactment.
Employees may have the option to change coverage to different plan offered by an employer. At the employer’s option, eligible individuals may be allowed to apply the COBRA subsidy to any health plan option offered by their employer to active employees, provided that the coverage has the same or lower premium as the individual’s continuation
Employers may claim a tax credit against periodic deposits for wage withholdings and FICA payroll taxes for the portion of COBRA premium not paid by individual. If the employer’sclaims for COBRA subsidy payments exceed the amount of wagewithholdings or FICA payroll taxes reported by the employer,Treasury is directed to reimburse the employer directly for theexcess amount. Entities entitled to reimbursement must reportcertain information to the Treasury Department, includingattestations of involuntary termination for each coveredemployee and amounts of payroll taxes offset for the reportingperiod and estimated offsets for the subsequent reporting period.
1. Identify individuals eligible for COBRA who were terminated on an involuntary basis on or after September 1, 2008 and dependents of these individuals who previously became eligible for COBRA.
2. Revise and update COBRA communications materials, placing a priority on creating a notice for those terminated employees immediately entitled to a new COBRA enrollment period.
3. Notify all individuals within 60 days of the bill’s enactment of their new COBRA election period and of the availability of the premium subsidy (and, if applicable, other COBRA coverage options).
4. Coordinate with payroll to revise systems and other procedures for paying the government’s 65% share of the COBRA premium and for reflecting the revised charges on premium statements sent to participants.
5. Coordinate with payroll and systems personnel to revise systems and other procedures for obtaining reimbursement of these amounts from the federal government.
6. Coordinate with payroll and systems personnel to revise systems and other procedures for determining participant premium over payments and crediting the payments to future premiums or returning the over payments directly to the participant.
7. Develop processes, procedures, and systems changes necessary to end the subsidy when the individual no longer is able to claim it and to reinstate the 100% COBRA premium charge if the individual continues to be eligible for COBRA after termination of the subsidy.
8. Determine whether the employer wishes to allow the former employee to switch to alternative health coverage for COBRA purposes.
9. If the employer currently pays for some portion of COBRA premiums, determine whether these payments should be restructured.
10. If significant reductions in force have been made since September 1 or may be made in the near future, determine how these new rules will affect COBRA claims experience and administrative costs for self-funded plans. If necessary, perform the actuarial calculations necessary to revise future plan rates.
11. Revise and update employee data capture procedures to update addresses on employees and dependents that could be eligible.
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Sources: SHRM, AON, American Benefits Council, DOL, IRS