Federal law (COBRA - employers with 20 or more employees) and California law (Cal-COBRA - employers with 2-19 employees) provide individuals who have experienced a "qualifying event" the ability to continue their health insurance benefits for a period of up to 36 months by having the covered individual pay up to 102% of the full health insurance premium cost. A "qualifying event" under COBRA/Cal-COBRA includes, among other reasons, voluntary termination of employment, involuntary termination of employment (except for gross misconduct), and a reduction in hours resulting in a loss of health benefits.
On February 17, 2009, President Barack Obama signed into law a federal stimulus package - also known as the "American Recovery and Reinvestment Act of 2009" - in an attempt to address the current economic downturn in the United States. Included in this federal stimulus package are some temporary revisions to the implementation of federal COBRA and state Cal-COBRA health insurance premiums for qualified individuals who were involuntarily terminated from their job (e.g., termination of employment or layoff that is not the result of gross misconduct) between September 1, 2008 and December 1, 2009. These temporary provisions only apply to individuals affected by an involuntary termination, and not any other "qualifying event" under COBRA/Cal-COBRA. Therefore, individuals who voluntarily terminated their employment or who had a reduction in hours resulting in a loss of health benefits are not covered under these temporary COBRA/Cal-COBRA provisions of the federal stimulus package.
A full copy of the federal stimulus package’s COBRA provisions can be found at:
Below is a summary of the impact of these temporary revisions to COBRA/Cal-COBRA.
Qualified Individuals on COBRA/Cal-COBRA Can Now Receive a 65% Federal Subsidy for Health Insurance Premiums for up to Nine Months.
Employees who were involuntarily terminated between September 1, 2008, through December 31, 2009, will be eligible for a 65% federal subsidy of their COBRA/Cal-COBRA health insurance premium payments. For example, an employee who normally pays $1000/month in health insurance premiums under COBRA/Cal-COBRA, would only be required to pay $350/month (35%) because the other $650 (65%) would be covered by this federal subsidy.
The federal subsidy ends after one of the following circumstances occurs (whichever comes first):
The subsidy plan became effective on the day the federal stimulus package was signed into law. However, for individuals whose health insurance premium payments are paid on a monthly basis, the plan becomes effective on March 1, 2009. Although the time period for qualification dates back to September 1, 2008, the federal subsidy does not apply retroactively before the effective date of the law.
Covered Individuals with High Annual Incomes Do Not Qualify for the Federal Subsidy.
Covered individuals who have a modified adjusted gross income (AGI) of $125,000 per year (or $250,000 AGI for joint filers) will only receive a phased-out portion of the 65% subsidy. The subsidy will not be available at all to covered individuals with $145,000 AGI (or $290,000 AGI for joint filers). Although these "high income" individuals will not be screened before receiving the federal COBRA subsidy, they will be liable to pay-back any federal subsidies received that they were not eligible for as part of their federal income tax return for the covered year. As a result, "high income" individuals may want to opt-out of receiving this federal subsidy to avoid any federal income tax consequences.
Employers Can Also Allow Covered Individuals to Switch Health Insurance Coverage.
The new provisions also permit an employer, at its option, to allow covered individuals who were involuntarily terminated to enroll in different health care coverage plans provided to other current employees so long as the premium for the different coverage is not higher. The new health care coverage cannot be coverage that provides only dental, vision, a health flexible spending account, or coverage for treatment that is furnished in an on-site facility maintained by the employer.
Payment/Reimbursement of Subsidies
The payment of the 65% federal subsidy for COBRA/Cal-COBRA health insurance payments will initially come from the employer. Employers who receive the 35% of COBRA/Cal-COBRA premiums from covered individuals will then be reimbursed for the 65% federal subsidy through credits applied to federal payroll taxes.
In the beginning, some covered individuals may not become aware of the new federal subsidy and therefore continue to overpay their COBRA/Cal-COBRA premiums by paying the full premium amount. In order to reimburse the covered employee in this situation, employers will have an initial choice of either providing a refund or a credit to be used against future premium payments. The credit option is only available if it is expected that the full credit will be used by the individual within 180 days of the date the full COBRA premium amount was paid.
Qualified Individuals Who Did Not Previously Elect COBRA Benefits Are Now Eligible for a Second Chance to Elect Such Benefits.
Qualified individuals who did not elect COBRA coverage and were involuntarily terminated between September 1, 2008 and February 16, 2009 are now given a second chance to elect coverage under the federal stimulus package. Covered employers must provide a second COBRA eligibility notice within 60 days of February 17, 2009 to eligible individuals who did not elect COBRA coverage. Eligible individuals who did not elect COBRA coverage will now have an additional 60 days from their receipt of the second COBRA notice to elect COBRA coverage.
Although the federal subsidy payments apply to both COBRA and Cal-COBRA covered individuals, it does not appear that this "second chance" COBRA election applies to those who would have only qualified for benefits under Cal-COBRA.
Notice and Reporting Obligations
In light of these new provisions, employers are required to send written notices to eligible beneficiaries of the change regarding, among other things, the federal subsidy, the opportunity to enroll in different coverage if the employer permits it, and the extended election period. Employers are required to send these notices to eligible individuals by April 18, 2009 (60 days from the implementation into law of these new provisions). The Department of Labor plans to publish sample written notices on or before March 19, 2009.
The new provisions also include new reporting requirements for employers. Employers who receive COBRA/Cal-COBRA premiums must submit reports including social security numbers of eligible employees, the subsidy amount for each employee, and designation of whether coverage is for one individual or for two or more individuals. Other reporting requirements may apply.
With the subsidy resulting in covered individuals only having to pay about one-third of their COBRA/Cal-COBRA health insurance premiums, employers with many recent involuntarily terminations and layoffs should expect a surge in covered individuals electing for COBRA/Cal-COBRA health insurance benefits. As a result, employers will need to review and update their COBRA/Cal-COBRA plans and determine which employees may qualify for these provisions. Employers should also contact their health plan administrators, if applicable, to ensure that these temporary provisions are implemented appropriately. Employers with any questions regarding how to implement these new temporary COBRA/Cal-COBRA provisions should contact any one of LCW’s offices.
This article was written by Connie Chuang and Gage C. Dungy, attorneys with the labor and employment law firm of Liebert Cassidy Whitmore. Ms. Chuang (email@example.com) is an Associate in the Los Angeles office and can be reached at (310) 981-2000. Mr. Dungy (firstname.lastname@example.org) is an Associate in the Fresno office and can be reached at (559) 256-7800. For more information regarding the discussion above or on our firm please visit our website at www.lcwlegal.com, or contact one of our offices below.
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