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March 1 is a Key COBRA Date |
For employers, the time is now to comply with a little-known provision in the new stimulus law, signed by President Obama on February 17th. Part of the American Recovery and Reinvestment Act of 2009 is a revamping of COBRA law for certain employees.
COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, is the federal law that gives terminated employees and their families the right to continue group health benefits provided by group plans. This extended coverage is provided for limited periods of time under certain circumstances such as involuntary job loss, reduction in hours worked, transition between jobs, death, divorce, and other life events. Many states have similar laws.
The new key provision: Individuals who were terminated on or after September 1, 2008, who qualified for COBRA but declined coverage, now have the right to choose to be covered -- with a government-paid subsidy of the insurance premium through 2009.
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Involuntary Job Loss? |
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Who are involuntarily terminated employees? COBRA benefits are available to voluntarily and involuntarily terminated employees – except those terminated for gross misconduct -- and their qualifying spouses, ex-spouses, and dependents covered in an employer's health insurance plan.
But which employees are involuntarily terminated for gross misconduct?
 The new law doesn't define these terms. Employers can expect disagreements on whether or not certain employees were involuntarily terminated. Individuals involved in these disputes can use a newly created appeal process with the Department of Labor (DOL).
The DOL has 15 days to determine the individual's eligibility for the COBRA subsidy.
What's an Employer to Do?
First, when terminating an employee, obtain and retain written documentation that confirms the reason or reasons for the employee's job separation. For example, conduct exit interviews with departing employees and have them complete an "Exit Interview" Form on which they indicate the reason or reasons for leaving the job.
Second, assume that any termination that occurs because of the employer's actions is likely an involuntary termination.
Third, do NOT engage in constructive discharge. In other words, do not get involved in activities that encourage or force an employee to quit a job and then expect to evade responsibility for a termination. |
The key date is March 1: Employers who terminated employees between September 1, 2008 and March 1, 2009 must notify qualifying employees who declined COBRA coverage that they (and their spouses, ex-spouses, and qualifying dependents) now have the right to choose to continue coverage.
An employer's notice must tell eligible individuals they have 60 days to elect COBRA coverage. If they do so, under the new law, the premium subsidy ends when they:
- Become eligible for health insurance coverage from another employer.
- Enroll in and are covered by Medicare.
Organizations that terminate employees on or after March 1, 2009 must notify them (and their qualifying spouses, ex-spouses, and dependents) of the right to continue coverage if they've been in an employer's benefit plan.
Employers must use a federal government issued model notice. However, the applicable government agencies have 30 days following the law's February 17th enactment date to design and issue the notice. Employers should begin to track down the current address or contact information for eligible individuals to expedite the contact process when the model notice is available. Notices must be sent to eligible individuals within 60 days of the enactment date of the new law.
Here's a rundown of other COBRA changes:
- The new COBRA subsidy to help pay the premiums for health benefits. Starting March 1, COBRA premiums may not exceed 35 percent of the cost. The remaining premium cost must be paid by employers, who then can claim a tax credit against wage withholding and payroll taxes to cover their paid portion of the premiums. When an employer's deductions from wage withholding and payroll taxes don't cover all of the COBRA subsidy, the employer will be able to file with IRS for the remaining amount.
The premium subsidy continues for up to nine months for eligible individuals and their qualifying family members.
Eligible individuals who declined to take COBRA benefits between September 1, 2008 and March 1, 2009 have a new 60-day election period during which they can choose to enroll and receive the subsidized COBRA coverage.
The COBRA premium subsidy continues through December 31, 2009.
The temporary subsidy is available to qualifying individuals under the federal COBRA law and similar state and governmental medical benefit continuation coverage laws.
Individuals are not eligible for COBRA subsidies in a year when their adjusted gross incomes (AGIs) exceed certain limits.The government recaptures part or all of the COBRA subsidy in the form of additional income tax when the qualifying individual's AGI is between $125,000 and $145,000 for single filers or $250,000 and $290,000 for joint filers. Individuals who anticipate that their incomes will exceed those amounts in a taxable year can waive the COBRA premium subsidy.
The COBRA 18-month continuation coverage period remains the same and begins with the individual's loss of health insurance benefits in an employer plan due to the qualifying employee's involuntary termination of employment.
The employer can permit eligible individuals to switch their coverage option to a less expensive choice when they elect to exercise their COBRA rights. This is a change from the previous COBRA provision that allowed qualifying individuals only to continue the coverage option they had as active employees.
Who Qualifies for COBRA? Some Key Eligibility Factors
Qualifying events that trigger an individual's right to elect COBRA continuation of health insurance benefits are the following.
For employees:
- The involuntary termination of employment for reasons other than gross misconduct.
- A reduction in the number of hours of employment that disqualifies the individual from employer-paid coverage in an employer-sponsored health plan.
For employees' spouses and ex-spouses:
- involuntary termination of employment of the covered employee for reasons other than gross misconduct.
- A reduction in the number of hours of employment of the covered employee that disqualifies an individual from employer-paid coverage in an employer-sponsored health plan.
- The covered employee's becomes entitled to Medicare.
- The divorce or legal separation of the covered employee.
- The death of the covered employee.
For employees' dependent children:
- The same five events listed above for spouses and ex-spouses.
- The loss of dependent child status under the health plan rules.
To qualify for COBRA continuation benefits, the covered individual must have been enrolled in the employer's health benefits plan when the employee was working. And the employer's health plan must continue in effect.
[NOTE: Information and guidance in this story is intended to provide interesting and helpful information on the subjects covered. It is not intended to provide a legal service for readers' individual needs. For legal guidance in your specific situations, always consult with an attorney who is familiar with employment law and labor issues.]
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