Breaking News

COBRA Subsidy Impacts Employers

RecoveryThe recent 2009 American Recovery and Reinvestment Act will have substantial impact on employers’ COBRA obligations. Under the new law, eligible individuals (those involuntarily terminated between September 1, 2008 and December 31, 2009) will be required to pay 35 percent of his or her COBRA premium. The remaining 65% of the COBRA premium will be reimbursed by means of a payroll tax credit to the employer (in the case of a self-funded plan), the plan (in the case of a multiemployer plan), or the insurer (in the case of an insured plan that is not subject to federal COBRA). The Secretary of the Treasury will issue guidance on how a claim for the tax credit is to be filed. If the payroll tax credits are insufficient to cover the COBRA expense, then the entity entitled to reimbursement will receive the remainder of reimbursement directly from the Secretary of the Treasury.

The good news for our clients who have our group health insurance plans is that we’ll identify all employees who are eligible and manage reimbursements.

What employers need to do who don’t have ARI’s health insurance plans:

  • » Employers should review their severance arrangements and health plan documents to determine how these plans and programs will be affected by the new law.
  • » Employers should consider whether it is more beneficial to pay for continued coverage as part of a severance arrangement or to only offer employee-pay-all COBRA.
  • » Employers should update their COBRA forms and notices and/or contact their ARI to ensure compliance with the new law.
  • » Employers should inform ARI and vendors as to the premium reimbursements that will be treated as payroll tax credits and make the appropriate application.
  • » Employers should also take steps to determine which involuntarily terminated employees are Eligible Individuals, as notice of the special election period described above must be provided within 60 days after the enactment of the Act.