Stimulus Bill - COBRA Changes

Sunday, 01 February 2009 18:00

The Subsidy

Employees who are involuntarily terminated between September 1, 2008 and December 31, 2009 are only required to pay 35% of COBRA premiums for up to nine months after separation from employment.  The federal government will subsidize 65% of the premium by allowing employers to deduct the unpaid subsidy amounts from periodic payroll tax deposits. If an employee's unpaid subsidy amount exceeds his or her tax liability, the federal government will refund the excess amount to the employer as if an overpayment occurred.  We believe that the administration fee of 2% can still be collected from the covered individual - but we are waiting for regulations to confirm. If a participant becomes eligible for coverage in another plan and fails to notify the employer, they will be subject to a penalty of 110% of the subsidy amount.  This subsidy is effective beginning on March 1, 2009.

Eligibility

You are eligible for the subsidy if:

• Your individual income is less than $125,000 per year or your family income is less than $250,000 per year; and
• You were laid off between September 1, 2008 and December 31, 2009; and
• At the time of the layoff you were participating in group coverage sponsored by your employer. (You may currently be insured through COBRA, through a private plan, or uninsured.); and
• Your employer must continue to exist (if the company was liquidated in a Chapter 7 bankruptcy then group coverage will no longer be available).
• If you were laid off on or after September 1, 2008 and did not choose COBRA within the required 62-day window, you're allowed to become eligible for COBRA again, as long as the former employer continues to exist and offer group coverage.
• The subsidy is not retroactive and will only apply from the date of the law's passage going forward. If you've opted for COBRA and begin paying premiums before the effective date of the Act, you won't get a credit or refund for the COBRA premiums paid prior to that effective date.

You are not eligible for the subsidy if:

• You were laid off before September 1, 2008 or after December 31, 2009.
• You weren't participating in group coverage through your employer before your layoff.
• Your company didn't offer health insurance benefits or has gone out of business.
• Companies with fewer than 20 employees are not required by federal law to offer COBRA coverage, but check with your benefits administrator at your former employer as some states require employers with fewer than 20 employees to offer continuation coverage.
• If you reside in one of these states, you may be eligible for this subsidy if your state's continuation of coverage requirements is comparable to COBRA's continuation of coverage requirements. Please check with your benefits administrator to confirm whether you are eligible for this subsidy.