Copyright 2009 Richard T. Kenndy and Meyer, Unkovic & Scott LLPAll rights reserved. Contact Mr. Kennedy at (412) 456-2880 or rtk@muslaw.com
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STIMULUS LAW PROVIDES COBRA SUBSIDY
The American Recovery and Reinvestment Act of 2009 was signed into law on February 17,2009. Among other things, the Act provides a subsidy for COBRA premiums. The subsidygenerally takes effect on March 1, 2009 and requires immediate action by employers andCOBRA administrators. Some key points follow.SubsidyThe subsidy is a 65% reduction in the amount of the premium an eligible individual is required topay for up to 9 months of COBRA continuation coverage. An eligible individual will pay 35% ofthe COBRA premium to the employer, health plan or insurer. The employer, health plan orinsurer pays the remaining 65% of the COBRA premium and is reimbursed in the form of acredit against the payroll taxes (income tax withholding and FICA taxes) the employer, healthplan or insurer is required to pay to the Treasury Department.Eligible IndividualsAn eligible individual is an employee whose employment involuntarily terminates fromSeptember 1, 2008 through December 31, 2009 with eligibility for COBRA coverage along withthat employee's spouse and dependents eligible for COBRA coverage. Under a means test, anindividual with adjusted gross income of more than $145,000 ($290,000 for joint filers) is noteligible for the subsidy, and an individual with adjusted gross income between $125,000 and$145,000 ($250,000 to $290,000 for joint filers) is eligible for a reduced subsidy. An individual ispermitted to permanently waive the subsidy.Second ElectionAn eligible individual whose employment involuntarily terminated on or after September 1, 2008and before February 17, 2009 and who declined to elect COBRA coverage is required to beprovided with another COBRA election. Any COBRA coverage elected will be effective with thefirst coverage period after February 17, 2009, which typically would be March 1, 2009. Thiselection would not extend the total period of otherwise available COBRA coverage.New Notice RequirementsNotices explaining the new subsidy provisions and other COBRA provisions in the Act will haveto be provided to qualified beneficiaries who lose coverage on or after September 1, 2008 andbefore 2010. Individuals who became entitled to elect COBRA coverage before theFebruary 17, 2009 enactment date must be provided with new notices within 60 days of theenactment date. The Department of Labor has been directed to issue a model notice within 30days of the enactment date.
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