CLIENT ALERT / Stimulus Package Impacts Cobra Eligibility; Employers Need to Take Immediate Action Print

The American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”) was signed by President Obama on February 17, 2009.  The Stimulus Bill provides for temporary but significant modification of COBRA benefits that employers need to be aware of and, in some cases, need to take immediate action.

The most significant change is that employers will, for the short term, subsidize the COBRA premiums at 65%.  COBRA (which effects employers with 20 or more employees) previously provided that eligible terminated workers were entitled to COBRA benefits (extended health care coverage through 18 months post-termination) if the employee paid 102% of the premium costs.

Under the Stimulus Bill, self-insured employers (or in the case of group health plans, the insurer) will subsidize 65% of the COBRA premiums for employees whose employment was involuntarily terminated in the period from September 1, 2008 to December 31, 2009.

While the employer will receive reimbursement for this by a credit on payroll taxes (and a refund if there is a surplus, treated similarly to an overpayment), self-insured employers need to be prepared for this new benefit to employees and subsequent cost to the employer.

With layoffs increasing for many large employers, this will add another layer of regulation and burden to employers.  Some points to bear in mind:  
•    The subsidy is only available for nine months, not the entire 18 month COBRA period;
•     Former employees who declined COBRA have 60 days to elect COBRA under this Stimulus Bill, starting February 17, 2009;
•    Existing COBRA notices must be modified to include information regarding the subsidy and meet other technical requirements in the Bill; and
•    Employers need to provide supplemental notice to all COBRA-entitled terminated employees between September 1, 2008 and December 31, 2009.

There are other components to this Bill that might impact your COBRA-eligible former employees.  Please do not hesitate to contact any of the attorneys at Taylor, McCormack & Frame with questions.

If you have any questions about this or any legal matter,
please don’t hesitate to contact the attorneys at Taylor, McCormack & Frame.

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