E-Newsletter

February 2009

COBRA Premium Assistance Provisions of 2009 Federal Stimulus Package:  Immediate Employer Action Required

Keith E. Kopplin, Esq.

On Tuesday, February 17, 2009, President Barack Obama signed the $787 billion stimulus bill into law. This legislation, entitled the American Recovery and Reinvestment Act (ARRA), includes significant changes to the Consolidated Omnibus Budget Reconciliation Act (COBRA) requiring immediate action by most employers. Specifically, ARRA requires employers to subsidize 65% of the COBRA premium for "assistance eligible individuals" for a period of up to nine months. Although employers are permitted to credit this contribution towards their payroll tax burden, they must advance the premium payments until they file their quarterly payroll tax reports.

These COBRA premium assistance provisions became effective upon the signing of ARRA, and require subsidization of premiums beginning with the first period of coverage after that date (which, for most employers, will be March 1, 2009). The law also includes a grace period of two full COBRA billing periods for employers to commence the subsidy, provided appropriate premium credits or refunds are provided in subsequent periods. Employers should take swift action to identify assistance eligible individuals and provide appropriate notices. Here is additional information regarding the COBRA premium assistance provisions of ARRA:

• Assistance Eligible Individual (AEI): means any qualified beneficiary who, at any time from September 1, 2008, until December 31, 2009, becomes eligible for COBRA continuation coverage due to the involuntary termination of employment. It is important to note that this definition encompasses previously terminated individuals, as well as future terminations. The premium assistance phases out, however, for highly compensated AEI's, with those earning greater than $145,000 per year ($290,000 for married couples) ineligible for any assistance. Likewise, employees are permitted to waive their right to assistance, although it can be assumed that most, if not all, will accept the subsidy.
  
  
• Involuntary Termination of Employment: only individuals eligible for COBRA due to involuntary termination of employment are entitled to the premium assistance. Although all sections of ARRA were designed to alleviate the economic difficulties gripping the nation, it is important to note that the premium assistance is generally available for all involuntary terminations, not just those pursuant to an economic reduction in force. The language used by ARRA merely excludes other COBRA qualifying events, such as a reduction in hours, resignation, or divorce, from its coverage. Generally speaking, only individuals terminated for gross misconduct can be denied the opportunity to continue their insurance coverage. Employers should seek advice of counsel if they are considering this as an option.
  
  
• Notice Requirements: employers must provide AEIs notice of, among other things, the new premium arrangement, its duration, and the option to enroll in different coverage (if the employer normally provides COBRA qualified beneficiaries that option). Because ARRA also provides for an additional election period, all AEIs involuntarily terminated after September 1, 2008, regardless of whether they elected or declined COBRA continuation, must be provided notice. The additional election period notice must be sent to previously terminated AEIs on or before April 18, 2009. Although the Department of Labor is required by ARRA to issue model notices on or before March 19, 2009, employers are strongly encouraged to amend their policies, at least with respect to future terminations, to account for these changes in the law. Employers seeking reimbursements must also submit special reports to the IRS.
  

In light of the foregoing, employers should amend their COBRA notifications to incorporate the required subsidy provisions and, where applicable, coverage options. Employers should also identify all employees involuntarily terminated since September 1, 2008, for purposes of providing supplemental notice. Payroll practices should also be reviewed and revised to account for the payroll tax credit provisions of ARRA.

If you have any questions regarding this issue, please do not hesitate to call or e-mail.

For guidance on this and other employment law questions, contact Krukowski & Costello, S.C.'s educational services department at (414) 988-8400.