The American Recovery and Reinvestment Act of 2009 (ARRA), enacted on February 17, 2009, includes new Consolidated Omnibus Budget Reconciliation Act (COBRA) provisions that will require employers to act quickly to bring their COBRA programs into compliance. The new COBRA provisions are effective for periods of coverage beginning on or after February 17, 2009. Thus, for health plans that provide coverage on a monthly basis, the law will become effective on March 1, 2009. Highlights of the new COBRA provisions are described below.
Subsidized COBRA Premiums for Eligible Individuals
ARRA provides that an individual entitled to elect COBRA continuation coverage (whether under federal COBRA law or similar state insurance law) as a result of an involuntary termination of employment that occurs between September 1, 2008 and December 31, 2009 is required to pay only 35 percent of the regular COBRA premium. The United States Department of the Treasury (Treasury) will pay the remaining 65 percent. The subsidized premium is available until the earliest of any of these conditions:
The former employee and other qualified beneficiaries are required to notify the COBRA administrator when such individual becomes eligible for other group health plan coverage or Medicare and thus ineligible for the reduced premium. If an individual does not timely notify the COBRA administrator, the individual will be required to pay a penalty of 110 percent of the premium reduction amount to the Internal Revenue Service (IRS).
Special Rules for Previously Terminated Eligible Individuals
Special rules apply to otherwise eligible individuals whose COBRA-qualifying event occurred prior to the date of the law’s enactment:
New Notices — Immediate and Delayed Delivery Requirements
ARRA requires the United States Department of Labor (DOL) and IRS to create model notices describing the new rights by March 19, 2009. However, group health plan administrators must start providing updated notices immediately for individuals whose involuntary termination of employment occurs on or after February 17, 2009. For individuals whose involuntary termination of employment occurred prior to February 17, 2009, the employer has until April 18, 2009 to provide notices about the new 60-day enrollment rights.
Plans Will Be Reimbursed for the Subsidy
Employers (for self-insured health plans), insurance companies (for fully insured health plans), and multi-employer plans will be able to recoup the 65 percent subsidy from the Treasury through an offset to payroll taxes.
Recapture for Higher Income Individuals
A COBRA-qualified beneficiary whose modified adjusted gross income exceeds $145,000 (or $290,000 in the case of a joint return) for a year is not eligible for the subsidy. If an individual’s income is less than these limits but more than $125,000 (or $250,000 in the case of a joint return), a partial subsidy applies. If such an individual pays the reduced premium, the individual must claim the subsidy as an additional tax on his or her tax return. Such individual may opt out of the subsidy by filing a permanent waiver of the reduced premium with the health plan.
Plans Can Allow Qualified Beneficiary to Elect Lower Cost Option
ARRA permits, but does not require, employers to allow eligible individuals to elect a lower cost COBRA option. An employer that wants to offer this right must provide a notice to eligible individuals and provide up to a 90-day period to elect the lower-cost option.
Extension of COBRA Rights for Certain Other Individuals
ARRA also extends the COBRA coverage period for certain COBRA-qualified beneficiaries:
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Robert E. Goldstein
Samuel F. Hoffman
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Isaac J. Morris
Greg W. Renz
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