On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “ARRA”), the comprehensive economic stimulus package. Among its other provisions, the ARRA includes an extension of the right to elect COBRA coverage, a reduction in COBRA premiums for eligible participants, and new notice obligations for employers.
Extension of COBRA Election: Under the ARRA, employees who were involuntarily terminated between September 1, 2008 through February 16, 2009, and who do not have COBRA coverage because they either did not initially elect COBRA or elected COBRA, but are no longer covered, will have a second opportunity to elect COBRA coverage or to re-establish COBRA coverage. The new election period began on February 17 (the day the President signed ARRA into law) and ends 60 days after the required notice of the special election period is given. The second election period does not extend COBRA coverage beyond the original maximum period, but simply allows a second opportunity to elect COBRA coverage or re-establish coverage that was originally elected, but thereafter lost.
Reduction of COBRA Premium: In addition to the opportunity to elect COBRA coverage, the ARRA offers a reduction in COBRA premiums for assistance eligible individuals. Assistance eligible individuals can receive a 65% premium reduction subsidy for the cost of COBRA coverage after February 17, 2009 (the day the ARRA was signed). But the premium reduction ends upon the sooner of: the eligibility for other group coverage or Medicare; after 9 months of receiving the reduction; or when the maximum period of COBRA coverage ends, whichever occurs first. Individuals paying reduced COBRA premiums must also inform their plans if they become eligible for coverage under another group health plan or Medicare.
Assistance eligible individuals are those former employees (and members of their families) who were eligible for COBRA at anytime between September 1, 2008 and December 31, 2009, lost their job due to an involuntary termination, and who elect COBRA coverage. Assistance eligible individuals are required to pay only 35% percent of the COBRA premium. Under the ARRA, once the beneficiary pays his or her 35% of the COBRA premium, the COBRA premium is considered paid. The employer, insurer, or health plan then picks up the remaining 65% of the premium, but is allowed a tax credit against certain employment taxes. The credit can only be taken after the 35% premium has been paid. According to the IRS, if the credit claimed is greater than the tax due, the Secretary of the Treasury will directly reimburse the employer, insurer or plan for the excess. The premium reduction only applies to periods of coverage beginning on or after February 17, 2009.
Additional Notice Obligations: Finally, the ARRA requires employers or plan administrators to provide eligible employees and covered family members with notice regarding the special COBRA-election period on or before April 17, 2009. Notice must also be provided regarding the premium reduction for those who had a COBRA-qualifying event between September 1, 2008 and December 31, 2009. This notice must be sent regardless of whether COBRA coverage was elected.
The Employee Benefits Security Administration is working on guidance regarding the ARRA, and the IRS may be able to provide additional guidance. Also, model notices are expected to be issued.