COBRA Subsidy Available: Employer Notice Required

Teresa J. Ayling
Attorney at Law

Mansfield Tanick & Cohen, P.A.

The recently enacted stimulus package, known as the American Recovery and Reinvestment Act of 2009, offers a subsidy for COBRA payments beginning February 17, 2009.

This program is temporary, allowing 9 months of subsidized benefits. Employers will be reimbursed for the subsidy by a payroll tax credit.

Who is Eligible

In order to be eligible for the program, a person must have been involuntarily terminated from their job between September 1, 2008 and December 31, 2009. Spouses and children who are eligible to be covered under the employee's health insurance also may take advantage of the COBRA subsidy. Even those people who did not elect COBRA when they first lost their jobs may do so during the new election period.

Employer pays 65% of the Premium, but is Reimbursed in Full

The employer must pay 65% of the premium owned, while the employee pays 35% of the premium. The employer will be reimbursed by the federal government through payroll tax credits. The IRS and treasury are expected to issue details on the paperwork, filing and reporting necessary to obtain the payroll tax credits. There is another mechanism for reimbursement for an employer who does not have sufficient payroll taxes due to offset the premiums paid.

Another Chance to Elect COBRA

In order to qualify for the COBRA subsidy, the employee, spouse, or child must either have initially elected COBRA coverage, or elect coverage during a new 60-day election period. For people who elect coverage during the second eligibility period, their coverage will begin on February 17, 2009, but the period of time that they can remain on COBRA (typically 18 months, but longer in some circumstances) will run from the date of termination of employment. The subsidy will last for 9 months, until the end of COBRA eligibility, or until the person becomes eligible for another plan or Medicare, whichever is shorter.

Employer Notice Requirements

Within 60 days of the date of enactment of the legislation (the legislation was enacted February 17, 2009 so the deadline is April 18, 2009), employers must provide a notice to all employees who where involuntarily terminated between September 1, 2008 and February 17, 2009, and must revise their COBRA notices for all those persons involuntarily terminated after February 17, 2009. The Departments of Labor, Treasury and Health & Human Services are required under the law to provide a model notice by March 19, 2009. Because employers have 60 days to provide the revised notices, some employers may want to wait until the model notice has been issued before drafting their own notices. Employers may want to contact their plan administrators for information about, and assistance with, the notice requirements. However, employers and plan administrators should begin now to identify employees who should be notified of the COBRA subsidies. Employees who believe they qualify should contact their former employers or plan administrators to ensure they receive notice.

Ability of Persons on Coverage to Switch Plans

Another provision of the act allows employers to give employees the option of switching to different coverage under certain circumstances, even after they are on COBRA. If an employer wishes to provide employees the option of taking advantage of this provision, they should consult their plan administrator, attorney or accountant for the details and limitations of this option.

Affect on Public Assistance

The amount of the COBRA subsidy will not be considered as income or as a resource in determining a person's eligibility for other types of public assistance.

Affect on Taxes on Individuals

Persons who earn more than $125,000 ($250,000 for joint return) in any year they receive the subsidy will have a portion of that amount recaptured in their taxes, and persons earnings over $145,000 ($240,000 for a joint return) will have the entire amount recaptured. These persons can make a permanent election to waive the assistance to avoid the recapture. You may wish to consult with your accountant if you fall within these categories.

This is intended to be a brief summary of some of the major components of the COBRA subsidy. It is not intended as legal advice or tax advice. If you have specific questions about drafting the required notices, obtaining the subsidy, or obtaining the tax credit from payment of the subsidy, you should contact your plan administrator, accountant or attorney.

Teresa J. Ayling is a Partner with the law firm of Mansfield Tanick & Cohen. Licensed to practice law in Minnesota and Wisconsin, Ms. Ayling has over 16 years of legal experience, with an emphasis on general civil litigation, employment and labor law, and contract law. She can be reached at 612-339-4295 or via email at tayling@mansfieldtanick.com.