COBRA Change

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COBRA Change

Post  JoeC (McGruff) on Tue Apr 21, 2009 5:06 pm

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009, Public Law 111-5 (ARRA). Section 3001 of the ARRA provides that qualified employees can obtain continuing COBRA coverage by paying only 35% of the premium for such coverage. In other words, under the new law, the employer providing continuing COBRA coverage will only be able to recoup 35% of the total premium cost from the employee (prior law allowed recovery of up to 102% of the premium amount). The employer will be responsible for 65% of the premium, which will be reimbursed by the government through a federal tax credit. The employee’s right to subsidized premiums applies to COBRA coverage periods beginning on or after the February 17, 2009 enactment date (March 1, 2009 for most plans). The subsidized premiums last for up to nine months beginning with the first coverage period after the enactment date.

In short, the ARRA changes mean that qualified employees may actually be able to afford to choose COBRA health benefits upon termination of employment, when they do not otherwise have health care coverage through, for example, a new job or purchasing health insurance on the private market. Previously, individuals had to pay up to 102% of the health plan’s premium, often making COBRA coverage too costly. Now, individuals can continue on their former employer’s group health care plan by paying only 35% of the premium – a much more affordable option.

The COBRA continuation coverage is available to employees terminated involuntarily for reasons other than gross misconduct on or after September 1, 2008 and before January 1, 2010, as well as their spouses and dependents who are COBRA-entitled. Involuntary terminations include an involuntary reduction to zero hours, such as a layoff, furlough or other suspension of employment resulting in loss of health coverage. They may also include a termination characterized as a “voluntary resignation,” if, absent the voluntary termination, the employer would have terminated the employee’s services and the employee knew that the employee would be terminated.

The ARRA amendments also require employers to provide additional notice to plan participants (employees) regarding the premium subsidy and other provisions of the new law (such as an extended period of time to elect COBRA coverage). IRS Notice 2009-27, which provides additional guidance regarding the ARRA, including a detailed Q &A, can be found at http://www.irs.gov/pub/irs-drop/n-09-27.pdf.
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