COBRA premium subsidy under the Economic Stimulus Package

posted by Neil Klingshirn  |  Jun 20, 2009 07:35 AM [EST]  |  applies to Ohio

The American Recovery and Reinvestment Act of 2009 (ARRA), better known as the economic stimulus package, provides "assistance eligible individuals" a 65% subsidy towards their COBRA continuation coverage. The subsidy is limited to 9 months and is available only if the individual timely elects COBRA coverage.

Assistance Eligible Individual

The COBRA premium subsidy is available only to individuals involuntarily laid off between September 1, 2008 and December 31, 2009.  It is available only after the effective date of the ARRA, February 17, 2009.  The premium subsidy is not available to COBRA recipients who are eligible as the result of a voluntary termination, medical leave or military leave. Premiums for COBRA continuation coverage include continuation coverage available under a "State program that provides comparable continuation coverage."

Amount Subject to the Subsidy

Only the amount of the premium that the employee is required to pay will be reduced by the ARRA subsidy. Thus, if an employer pays for a portion of the employee's COBRA premium, the employee is entilted to a 65% subsidy only on his or her share of the premium.

Practice tip: Avoid negotiating severance agreements providing for employer paid COBRA premiums. Instead, allocate the value of the employer paid COBRA premium to another item in the severance package, such as additional wage continuation.

New Election Period

Employers or their group health plans must offer an additional COBRA election to employees:

1. who became an assistance eligible individual on or after September 1, 2008 and
   
   
2. who would be eligible for the reduced COBRA premium if he or she had elected and kept COBRA coverage as of the date of the enactment, February 17, 2009.
   

The new election period must be offered both to assistance eligible individuals who originally declined COBRA coverage and to assistance eligible individuals who elected and subsequently terminated COBRA coverage.

The election period will begin on the date of enactment and will end 60 days after the date the employer or group health plan provides the notice of subsidized coverage, which notice is required by the ARRA.

Limits on eligibility for the COBRA subsidy

An otherwise assistance eligible individual is not entitled to the subsidy if he or she is eligible for coverage under another group health plan or Medicare. Assistance eligible individuals must notify their employer or group health plan when they become eligible for coverage under another plan and must pay back 110% of the subsidized portion of the premium if they fail to make this notification, unless their failure was due to reasonable cause and not to wilful neglect.

The COBRA subsidy is reduced for individuals earning over $125,000 (or $250,000 in the case of a joint return) and is phased out completely for individuals earning over $145,000 (or $290,000 in the case of a joint return)

Gap between Involuntary Termination and Subsidized Coverage does not Adversely Affect Portability

For pre-existing condition coverage purposes, the period of time between an eligible employee's termination and election of coverage with the subsidized COBRA premium will not count towards the 63 day coverage gap that triggers loss of coverage for pre-existing conditions by a subsequent health plan. That is, the health care portability act requires insurers to cover pre-existing conditions, unless the employee has a gap of more than 63 days in his or her health care coverage.  The time between termination and election of subsidized coverage will not count towards this gap.

External Links

• Text of the COBRA subsidy portion of ARRA
  

• Conference Committee statement on COBRA Premium Reduction Provision

posted by Neil Klingshirn  |  Jun 20, 2009 07:35 AM [EST]  |  applies to Ohio