On February 17, 2009, President Barack Obama signed the economic stimulus bill, called The American Recovery and Reinvestment Act of 2009 (ARRA).  This enormous and complex piece of legislation contains significant changes to the COBRA continuation coverage rules, which generally apply to companies with 20 or more employees. 

Rather than provide a mind numbing account of all the rules and their implications here, I'll provide some of the broad strokes of the bill and summarize by noting that most employers will end up saying, "This is so complex that I'm really glad I have a COBRA administrator, an employee benefit advisor, and a payroll company to handle this for me!"  I expect that many firms who don't currently outsource those functions will wish they did before their implementation of this legislation is complete.

The ARRA provides a federal government subsidy of 65% of COBRA premiums for up to 9 months for eligible individuals and their dependents who were involuntarily terminated from employment between September 1, 2008 and December 31, 2009, with the subsidy set to begin on March 1, 2009.

This legislation requires employers to pay 65% of the COBRA premium for "Assistance Eligible Individuals" (AEI's) who elect COBRA and pay the other 35% of the premium and then recover that cost as a credit from their liability to deposit payroll taxes and federal income taxes withheld from employees' compensation.

An assistance eligible individual (AEI) is a COBRA qualified beneficiary who experienced an "involuntary termination" (which is not defined) of employment between September 1, 2008 and December 31, 2009 for reasons other than gross misconduct and who either elected COBRA or who now elects COBRA during the special election period.  The special election period is the time period during which a second chance at enrollment at the new subsidized premium rates must be given to any individuals who would be an AEI except that they did not elect COBRA coverage initially. 

Not every AEI will truly benefit, however.  The government subsidy, although technically available, will be phased out and recaptured, or charged back by the federal government, on people's tax returns if they are "high income individuals".  The phaseout range for single taxpayers is a modified adjusted gross income of between $125,000 and $145,000, and for married taxpayers filing jointly it is between $250,000 and $290,000.

As is often the case with new legislation, there are many questions yet to be answered, and much work being done to interpret and apply the legislation nationwide.  The first step most employers and plan administrators should take is to identify all potential AEI's - employees who were covered by the group health plan who were involuntarily terminated since September 1, 2008.  From there, health plan or COBRA administrators can identify who has already elected COBRA and who must be offered a second chance to enroll during the special enrollment period.  It is also important that an open line of communication begin among the parties that will need to coordinate administration of this new program, including employers, their health insurance brokers, COBRA administrators, payroll contacts, and accountants.

Feel free to contact Milestone Financial Associates, LLC for more details on how these changes impact your business.