UBP blog


Changes in COBRA Part 1- Eligibility and How it Works (for employers and employees)

Filed under: ARRA Act COBRA Subsidy,COBRA — ubpblogger @ 8:44 am
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Our economy has obviously gone through some major hits over the last year. The new administration has taken on some major legislative changes in hopes of not only stimulating the economy, but also protecting families who have lost their jobs (or who will lose their jobs). Remember, until recently, the number one reason that families would go bankrupt was medical debt. Thus, encouraging hard-hit families to keep their medical coverage, even though they may be out of work, is a smart decision – and a meaningful one across the board.

Our government’s $787 billion stimulus package mandates employer action on COBRA assistance subsidies effective March 1, 2009. If you’re not sure what this means for your company specifically, read on!

President Obama signed the new “American Recovery and Reinvestment Act (ARRA)” into law in February of this year. This is a great thing for the ever-growing number of Americans who have lost their jobs over the last year. But like most COBRA legislation, it does create more work for employers.

ARRA provides a partial subsidy of COBRA and state mini-COBRA premiums to qualifying “assistance eligible individuals” (AEIs), their spouses, and their dependents. Premium assistance for these individuals began on or after the date the law went into effect (February 17, 2009) and at this point lasts through December 31, 2009.

Who is Eligible:

Assistance Eligible Individuals (AEIs) are qualifying COBRA beneficiaries and are defined as follows:

  • Have become eligible for COBRA continuation coverage on or after September 1, 2008 (and at this point before December 31, 2009).
  • Qualified for COBRA due to involuntary termination (for reasons other than gross misconduct).

Further, COBRA premium assistance is not available to individuals whose adjusted gross incomes exceed $145,000 annually (this number is $290,000 annually for joint-filers). Also, it’s important to note that for individuals whose annual adjusted gross incomes fall between $125,000 and $145,000 ($250,000-$290,000 for joint filers), COBRA subsidies are phased out through added taxes. Employees subject to these taxes can permanently waive their rights to a subsidy and pay the full COBRA premiums.

The ARRA legislation applies to medical, dental, vision and employee assistance programs. It does not apply to Medical FSA accounts (often called cafeteria plans).

How the COBRA Subsidy Works:

Premium subsidies are available to AEIs for up to nine months of their maximum COBRA coverage period. Subsidy amounts are based on the actual cost of COBRA premiums that the AEIs would otherwise incur.

Assistance eligible individuals will first contribute 35 percent of the monthly premium cost. The employer will then pay the remaining 65 percent and submit the payment to your insurer directly. The federal government will reimburse you for your contribution amount through a credit or refund of an overpayment of payroll taxes through the 941 Filing. The IRS will release an updated Form 941 that reflects this tax credit in the near future. If elected, subsidized COBRA coverage for the AEI will start the first of the month. His or her eligibility for COBRA subsidies will terminate on the earlier of the following:

• Nine months following their his or her date of COBRA election/re-election

• An offer of any new employer-sponsored health care coverage

• Medicare eligibility

Remember, these are the national, legislative changes in COBRA – and thus the minimum changes that you or your company must adhere to. Your STATE may also have legislation to be followed, and in some cases, it may be broader, etc. For instance, in the case of Massachusetts, the laws are far more aggressive and involved. Just be sure to be educated in this issue – whether you’re an employer OR an employee, this is a vital part of what’s happening right now.

Finally, remember to stay abreast of this. Right now the time limit on the legislation is December 31, 2009, but that may be extended in the future. Don’t assume that the dates are set in stone.

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