COBRA Changes under the American Recovery and Reinvestment Act (ARRA)

Everyone’s trying to get up to speed on the changes prescribed under Title III of the American Recovery and Reinvestment Act signed into law by President Obama on February 17, 2009. Unlike most legislation which allows for a lengthy lead time for implementation, this Act will affect those who were involuntarily terminated even before the enactment of ARRA, and new COBRA notices are required by April 18. The new notices will need to be sent to employees who were involuntarily terminated from employment after September 1, 2008, whether the employees elected COBRA coverage or not.

Who

Employees (and employers of employees) who lost or will lose health insurance coverage under an employer-sponsored plan due to a involuntary termination of employment between September 1, 2008 and December 31, 2009 (but not if individual’s modified gross income exceeds $290,000 for joint return filers and $145,00 for all others. Those with joint adjusted gross income of $250,000/$125,000 are entitled to a reduced subsidy.)

What

"Assistance eligible individuals" will be able to secure COBRA health insurance continuation coverage for 35% of the cost as opposed to 102%.

When

Now.   The subsidy is available for a maximum of 9 months, and ends upon eligibility for coverage under any other group health plan, or the expiration of the maximum allowable period of continuation coverage.

Where

Every workplace subject to COBRA, generally those employing more than 20 employees.

Why

With so many losing work, and health insurance premiums so high, a 65% reduction in premium will allow more unemployed persons to continue coverage.

Details

The employer pays the 65% balance which is then reimbursed to the employer by a credit on payroll taxes.   Employees who were involuntarily terminated after September 1, 2008 and before February 17, 2009 (the effective date of ARRA) who did not elect COBRA coverage will now be given another opportunity to do so. Employees who were involuntarily terminated after September 1, 2008. and did elect COBRA coverage prior to February 17, 2009 can receive the subsidy from the effective date of ARRA either by reimbursement from the employer or through a credit against future COBRA premium payments.

Although COBRA continuation coverage is available to individuals who lose their employment for any reason (except gross misconduct which generally is criminal conduct), this subsidy is available only to those whose employment was involuntarily terminated. It does not apply to those who voluntarily terminated employment, or to those who became eligible for COBRA coverage by reason other than a separation from employment. The existing prohibition from COBRA eligibility for gross misconduct continues to apply.

The Secretary of Labor or the Secretary of Health and Human Services, in consultation with the Secretary of the Treasury, shall implement an appeal process for those who are denied the COBRA subsidy in which a determination regarding eligibility shall be issued within 15 business days. This is the process in which questions such as whether termination was voluntary or involuntary will be decided. (If you think that’s not something that would often be contentious, think again, or ask an Unemployment Compensation referee.)