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March 2009
THE GPAHU INSIDER
A PUBLICATION OF THE GREATER PHILADELPHIA ASSOCIATION OF HEALTH UNDERWRITERS |
On Friday, February 13th, Congress passed a finalized version of the American Recovery and Reinvestment Act, a $787 billion economic stimulus bill, signed by President Barack Obama. The Act includes major changes to "COBRA" laws, which mandate the continuation of group health coverage for employees experiencing a "qualifying event" - such as the termination of employment - resulting in the loss of that coverage.
Before the passage of this Act, a qualified beneficiary who elected COBRA was wholly responsible for the payment of 100% of his or her COBRA premiums for the duration of the COBRA coverage period. The new Act changes this by allowing employees who were involuntarily terminated from employment between the dates of September 1, 2008 and December 31, 2009, to have 65% of their COBRA federally subsidized for nine months. This includes employees who have already declined COBRA coverage during this period.
This subsidy will only be available to participants with a modified adjusted gross income of less than $125,000 for the taxable year ($250,000 in the case of a joint return) and will be paid through credits against employers' payroll tax liability. The Act is to become effective immediately.
This is the most significant change to COBRA since it was enacted in 1986 and will have a major effect on how COBRA is administered.
There are a number of issues left open for plan administrators to grapple with, for instance:
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When and how should notice of these new COBRA rights be given, especially to employees who have been termed in the past?
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What is the definition of "involuntary termination"?
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What are the exact procedures to follow if payroll tax credits aren't enough to cover an employer's 65% COBRA subsidy?
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Whose ultimate responsibility will it be to determine whether a participant is below the income threshold (an initial reading of the bill indicates that this is the responsibility of the taxpayer, but what if the employer has notice of a discrepancy)?
These are just a few of the issues left open by this Act, and it will be up to the federal agencies with jurisdiction over COBRA, most notibly the United States Department of Labor ("DOL"), to settle them. It is expected that specific, comprehensive guidance will be made available soon, as the Act requires that the DOL draft model notices within 30 days of the Act's passage.
These legislative changes can and will be stressful and costly for businesses and plan administrators. It's important to remember that these amendments affect all employers who are presently subject to COBRA, virtually every employer in the country.
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The American Recovery and Reinvestment Act of 2009 (ARRA), as amended on March 2, 2010 by the Temporary Extension Act of 2010, provides for premium reductions for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly called COBRA. Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. To qualify, individuals must experience a COBRA qualifying event that is the involuntary termination of a covered employee's employment. The involuntary termination must generally occur during the period that began September 1, 2008 and ends on March 31, 2010. (An involuntary termination of employment that occurs on or after March 2, 2010 but by March 31, 2010 and follows a qualifying event that was a reduction of hours that occurred at any time from September 1, 2008 through March 31, 2010 is also a qualifying event for purposes of ARRA.) The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months. See Temporary Extension Act of 2010.
For more information, go to www.NAHU.org.or contact Health Insurance Solutions for assistance with your COBRA questions.
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