COBRA & the American Recovery and Reinvestment Act

The American Recovery and Reinvestment Act of 2009 changed the way COBRA benefits are administered. Most importantly for employers 65% of COBRA benefits must be paid for by the employer and then deducted by the employer from the payroll taxes paid to the government. Most employers offering health insurance to their employees in the U.S. will be required to comply with the new COBRA provisions by March 1, 2009.

The new COBRA system provides employees laid-off since September 1, 2008 through the end of 2009 with as much as a nine-month subsidy to help them continue receiving their employer’s health benefits. These former employees need only pay 35% of the cost of the monthly premium for health care coverage if their gross income is less than $125,000 for individuals or $250,000 for couples. The new government subsidy now covers the remaining 65 % of the cost of the premium. (Different rules apply for those making more income).

This benefit must be made available to all qualifying individuals. Employers must send notices to eligible employees notifying them of their rights to elect COBRA under the new subsidy rules. The notification must include employees who have already declined COBRA continuity. Employers must also allow workers to switch to lower-cost health plans if they are available.

While employers are readying administrative systems to comply if an employee pays the full amount of the premium, the employee can later use that over-payment as a credit toward future premiums or the employer can reimburse the employees the amount of the over-payment.

Jeanelle R. Lust

Ms. Lust is a charter fellow in the Litigation Counsel of America and is admitted in Colorado, Nebraska and South Dakota.

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