Economic Stimulus Package Provides COBRA Subsidy for Employees, Administrative Burdens for Employers
The Economic Stimulus Package signed into law with fanfare on February 17, 2009 provides help for employees who have lost their jobs or will lose their jobs between September 2008 and December 2009. Under the new law, many employees who are eligible for COBRA will be allowed to continue their benefits by paying only 35 % of COBRA premiums. The other 65% must be paid by the former employers, who will then be entitled to a tax credit for those payments.
For employees: Am I eligible?
You are an “eligible individual” under the American Recovery and Reinvestment Act (“ARRA” or “Stimulus Package”) if:
• Your employment was involuntarily terminated between September 1, 2008 and December 2009
• You are otherwise eligible under COBRA
• You are not eligible for another group health coverage (such as Medicare or your spouse’s plan)
• Your adjusted gross income is less than $125,000. (If your income is between $125,000 and $145,000 you will be eligible for a partial subsidy.)
For employees: If I am eligible, what does this mean?
• you will only need to pay 35% of your COBRA premium to purchase continued health care coverage
• The subsidy only applies to payments for coverage after February 17, 2009.
• The subsidy expires on December 31, 2009, unless it is renewed by Congress
• If you did not elect COBRA when it was first offered or if you lost your COBRA coverage because you failed to pay the premium, you have another opportunity to elect coverage. The new election period began on February 17, and continues for 60 days after the plan provides you notice about the premium reduction.
• The subsidy does not extend COBRA coverage if it is going to otherwise expire.
• If you later become eligible for another group plan you must let your old employer know. Otherwise, you will be liable for 110% of any subsidy that was incorrectly paid on your account.
For employers: What are We Required to Do?
• The first step for employers is to identify all employees who were involuntarily terminated since September 1, 2008.
• Employees who were involuntarily terminated and elected COBRA coverage must be informed of the availability of the subsidy.
• Employees who were involuntarily terminated and did not elect COBRA coverage, must also be informed of their right to elect coverage, and provided the necessary forms.
• The ARRA provides that the Department of Labor is to issue model notices for employers within 30 days. We’ve searched the DOL website, and it does not appear that the model notices have been issued yet.
For employers: How will We Be Reimbursed?According to the Department of Labor website, employers will receive a credit against payroll tax deposits, federal income tax withholding, or be eligible for a refund.
For updates and ongoing information, check out the DOL website at: