Obama Signs Stimulus Bill Providing COBRA Subsidy

February, 2009


Employers will face a significant communications and administrative challenge to comply with the COBRA provisions, which go into effect March 1, 2009.

If you would like clarification of these provisions as you apply them to your workplace, contact Cascade.

Subsidy Provisions

  • Employees who were laid off since September 1, 2008, and declined to opt for COBRA coverage will have a new right to enroll in COBRA, and employers are required to inform those individuals of that right.

  • Laid-off employees now receiving COBRA will have to be informed of the new subsidy and their premium contributions will have to be adjusted as of March 1, 2009, to reflect the new subsidy.

  • The program is mandatory for employers required to offer COBRA continuation health coverage. Eligible individuals must have a qualifying event between September 1, 2008 and December 31, 2009, and must have been terminated involuntarily. Employers providing COBRA benefits will be able to allow those electing COBRA to choose from other insurance options at the time of the qualifying event, and employers will be able to contribute to the individual portion of the premium.

  • Individuals with an annual adjusted gross income of more than $125,000 and couples with an adjusted gross income of more than $250,000 will not be eligible for the subsidy.

  • The subsidy by the employer is 65% of the employee's COBRA premium. The subsidy will be available for nine months, but not beyond the end of the maximum period of coverage required under COBRA or the individual's becoming entitled to coverage under another group health plan or Medicare.

  • Employees involuntarily terminated between September 1, 2008 and present, and who did not sign up for COBRA, will get an additional 60 days to do so and receive the subsidy. The subsidy would be prospective, applying to future COBRA premium payments. A new notice will need to be sent with subsidized COBRA premium amount.

  • Eligible former employees who previously elected COBRA on are after September 1, 2008, will need to be sent the required notice for the subsidized COBRA premium amount.

Reimbursing Employers

  • The bill's payment provisions would amend Subchapter B of chapter 65 of the Internal Revenue Code of 1986 with rules for reimbursing employers for the unpaid portion of COBRA premiums. The reimbursement would be treated as a credit toward the employer's payroll tax deposits and would be credited only after the employer received a reduced COBRA payment from an eligible participant, according to the bill.

  • Employers would be eligible to receive a federal cash payment if reducing withholding-tax remittances does not cover the subsidy.

  • Employers entitled to reimbursement under the new law would be required to provide periodic reports to the Treasury Department when they submit their payroll tax deposits or whenever the Treasury secretary specifies, according to the bill language. Those reports would document the involuntary unemployment of each eligible employee in the subsidy program, the amount of payroll taxes offset for that reporting period, and the estimated tax offsets for the following reporting period.

  • Economic Stimulus would change first Quarter 941 forms. Employers would pay portion of COBRA premiums and reduce Tax Deposits. There will be specific changes to form 941.

  • The bill would not allow the amount of the COBRA subsidy to be treated as income for purposes of determining a person's eligibility for benefits under any other federal, state, or local benefit program, according to current language.

 

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