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COBRA Update

Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.

The American Recovery and Reinvestment Act of 2009 (“Act”) has modified some separating employees’ COBRA rights by offering “assistance eligible individuals” (1) a 65% subsidy to be applied to required COBRA premiums and (2) an additional enrollment period during which to elect COBRA coverage.

The Act gives eligible individuals a 65% subsidy of the required COBRA premiums they would need to pay for any group health plan in which they were enrolled as of the date of their termination. Eligible individuals who elect COBRA can benefit from the subsidy for up to nine months.  In practice, the “assistance eligible individual” pays 35% of their required premium. The remaining 65% of the premium is paid by the employer who will then be reimbursed through a payroll tax credit. The credit will be taken on IRS Form 941 which will be filed for the period during which the subsidized premium is paid. If the payroll tax credit does not reimburse the entity for the total amount of its subsidized COBRA expenses, then the remaining amount will be reimbursed by check from the government.

An “assistance eligible individual” is any person who loses health coverage as a result of being “involuntarily terminated” between September 1, 2008 and December 31, 2009, and the terminated person’s dependents, as long as the person's adjusted gross income is $125,000 or less, or, for married couples filing taxes jointly, $250,000 or less. The subsidy is phased out as adjusted gross income increases from $125,000 to $145,000 and $250,000 to $290,000 for married couples filing taxes jointly.

The Act does not define what constitutes an “involuntary termination,” although nothing in the Act disturbs the general rule that employees who are terminated for “gross misconduct” need not be offered continuation coverage. Until additional guidance is issued, in keeping with COBRA’s general purpose of ensuring continued availability of health plan coverage to terminated employees and beneficiaries, an employer should consider treating an employee as having been involuntarily terminated and therefore assistance eligible, unless the circumstances clearly indicate either (i) a voluntary termination initiated by the employee, or (ii) termination on account of the employee’s gross misconduct.

“Assistance eligible individuals” who were terminated between September 1, 2008 and December 31, 2009, and who did not initially elect COBRA coverage have a new election period under the Act. These employees will be granted an additional 60 days after receiving a new COBRA notice during which they may elect subsidized COBRA.

Under the Act, information about the premium subsidy and the option to enroll must be added to current COBRA Notices, or provided to employees in a separate document.  An individual who became eligible for COBRA continuation coverage as a result of an employee’s involuntary termination of employment on or after September 1, 2008, but who had not elected coverage by the date of the enactment of the Act, must be given a new election opportunity. Notice of this new election opportunity must be provided by April 18, 2009, and the individual must elect the coverage within sixty (60) days of receiving the notice. If elected, an individual’s coverage will begin with the first period of health plan coverage beginning on or after February 17, 2009 (again, generally March 1, 2009); the coverage will not be retroactive to the individual’s termination date if it occurred before February 17, 2009. However, the period of COBRA coverage will not be extended as a result of the “late start.” This means that the COBRA coverage of an assistance eligible employee who terminated employment and lost coverage on September 1, 2008 and who takes advantage of the new election opportunity to start COBRA coverage on March 1, 2009 will expire by April 1, 2010, not eighteen (18) months after March 1, 2009. 

In addition, during the period from February 17, 2009 to December 31, 2009, the notice provided to a COBRA eligible individual upon the occurrence of a qualifying event must be expanded to include notice of the availability of premium assistance. The Act specifies the information that must be included in the required notices, and directs the Department of Labor to provide model notices by March 19, 2009.

If you have any questions regarding this Legal Alert, please contact Paul Malesick (pmalesick@kwgd.com) in the Krugliak, Wilkins, Griffiths & Dougherty Employee Benefits Section.

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

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