What is the American Recovery & Reinvestment Act?
On February 17, 2009 President Barack Obama signed into law the Economic Stimulus bill called the American Recovery & Investment Act. The Act has several different considerations, but in this addition of the HRC Insider we will talk about how it affects COBRA and the administration of COBRA. This new law requires immediate action from all employers that are subject to the rules and regulations of COBRA and its requirements go into effect on March 1, 2009.
Overview of the Act as it relates to COBRA
All employees that were involuntarily terminated on or after September 1, 2008 are eligible to enroll through COBRA onto their previous company's health plans. A special notice and election period will begin March 1, 2009 for all the employees that either did not elect COBRA after their qualifying event, or did choose a health plan on COBRA, but now are eligible to make an election change between the health plans offered and have 65% of the premium covered by the government. The following is an overview of the Act:
- Anyone who was or becomes involuntarily unemployed between September 1, 2008 and December 31, 2009 and was making less than $125,000 (single) or $250,000 (filing jointly) is eligible for this government subsidy.
- The legislation authorizes the government to subsidize 65% of the monthly COBRA premiums that a participant must pay in order to have the health, dental, or vision coverage on COBRA.
- The 65% subsidy will only be provided for 9 months and will commence upon the election of the participant onto COBRA, however, no subsidy will be paid towards premiums incurred before March 1, 2009.
- The subsidy will begin with the March 1, 2009 premiums and continue for 9 months commencing on the date the coverage begins on or after March 1, 2009.
- The subsidy will terminate if the participant becomes eligible for coverage under another group health plan or becomes eligible for Medicare coverage.
- The subsidy does not cover the premiums for HRA and FSA’s.
- The Act does not increase the initial 18 months of coverage allowed under COBRA.
- Eligible participants who did not enroll onto COBRA coverage when eligible will have an effective date of March 1, 2009 for coverage, but their 18 months of coverage will begin on the original qualifying date.
- Employers have to notify existing and or new eligible participants of their rights and this new subsidy as well as allow currently enrolled COBRA participants to change between the different plans the employer currently offers.
- The employer will fund the 65% subsidy and be reimbursed through a credit they apply for through their payroll taxes. (Employers will need to contact their accountant or advisor for clarity on the process and forms to use.)
How will HR Concepts administer this new regulation?
HR Concepts will be contacting all our existing COBRA clients to gather the necessary information on each employee who we were notified that they terminated on or after September 1, 2008. As soon as the Secretary of Labor releases the new language for the notification letter and our systems are updated, HR Concepts will send out new COBRA notification letter sets to each terminated employee outlining their eligibility and rights to enroll. These new letters we will be sending are considered new COBRA notification letters and will enable eligible participants to enroll or change their election on COBRA.
As a COBRA client of HR Concepts you will not need to do anything different with us other than notify us each time you have a qualifying event, if the event was an involuntary termination. The participants that qualify for this subsidy will be billed for their portion of the 35% of premiums. Each month we will send to you the premiums collected, along with a billing report, minus any 2% commissions we are entitled to.
(HR Concepts strives to keep you updated in the regulations and changes that affect all your qualified plans. However, HR Concepts can never provide legal or tax advice. This outline is for discussion purposes only and should not be construed as legal advice or guidance. Any questions regarding COBRA laws, an employer is directed to seek their own independent counsel.