General Information
What plans are covered by the Act?
Medical, dental, EAP, vision, and HRA
State mini-COBRA plans
Who is covered by the Act?
The act defines eligible individuals as “Assistance Eligible Individuals” (AEI’s for short). AEI’s are employees (and their eligible dependents) who were/are involuntarily terminated for a reason other than gross misconduct between September 1, 2008 and December 31, 2009. The Act does not specify that an individual must have been a part of a Reduction in Force. AEI’s are NOT eligible if they are eligible for other group coverage (ex: through a spouse) or eligible for Medicare. Of those eligible for the subsidy:
- Current COBRA beneficiaries will become eligible for the subsidy on March 1, 2009.
- Current COBRA beneficiaries may also be given an opportunity to change to a lower cost plan if one is available to them through COBRA effective March 1, 2009, should the employer allow them to do so.
- COBRA qualified beneficiaries who have declined COBRA or who’s COBRA has ceased for non-payment will be given a one-time opportunity to elect COBRA with the subsidy for an effective date of March 1, 2009. However, coverage will not extend beyond what the original termination date would have been if COBRA had been elected as of the original qualifying event date.
- Must have a modified Adjusted Gross Income of less than $145,000 ($290,000 for joint filers).
Note that the subsidy is reduced “proportionately” for individuals with a modified Adjusted Gross Income (AGI) between $125,000 and $145,000 ($250,000 - $290,000 for join filers) in the year in which they wish to receive the subsidy. Individuals with a modified AGI in excess of $145,000 ($290,000 for joint filers) in the year in which they wish to receive the subsidy are ineligible for any premium assistance. If the taxpayer receives a subsidy in a year in which he or she exceeds an income threshold, the subsidy is repaid through an increase in the taxpayer’s income tax liability. Taxpayers may permanently elect to waive the subsidy in order to avoid this income recapture.
Mini-COBRA
The federal subsidy does apply to mini-COBRA save for the provision allowing prior declines to elect back into COBRA coverage for March 1, 2009.
What is the subsidy amount?
65% of the cost of the monthly COBRA premium.
How does severance impact the subsidy?
The subsidy is only available for the unpaid portion of the COBRA premium. Therefore, whatever is unpaid by the severance agreement will be subsidized 65% and the employee would pay the remaining 35%. If the employer as part of a severance agreement pays COBRA in full, the subsidy is not available.
How does the MA unemployment COBRA subsidy impact the ARRA subsidy?
Individuals eligible for reimbursement from the Massachusetts state unemployment program for COBRA coverage will pay 35% up front and be reimbursed based on the 35%. Ex: An individual receives 80% reimbursement from MA unemployment. In a normal situation, the individual would pay 100% of the premium up front and then receive a reimbursement from MA unemployment in the amount of 80%. With the ARRA subsidy, the individual would pay 35% up front and be reimbursed 80% of that 35% from MA unemployment. This reduces the individual’s total out-of-pocket to 7% of the total monthly COBRA premium.
What is the effective date of the subsidy?
The subsidy begins with the start of the first full coverage period following February 17, 2009 (in almost all cases this is March 1, 2009).
Note that for the first two month’s of subsidy eligibility (for most the month’s of March and April 2009) the full COBRA premium may be charged to a participant if no election has been made to accept the subsidy. Any overpayments made by the participant are either reimbursed or applied to future months.
What is the effective date of COBRA coverage for prior declines who elect COBRA during the special election period?
Coverage is not retroactive for individuals with qualifying event dates prior to February 17, 2009. Coverage begins the start of the first full coverage period following February 17, 2009 (in almost all cases this is March 1, 2009).
How long does the subsidy last?
The earlier of nine months or the last day of the participant’s COBRA coverage period. To determine the end of the COBRA coverage period you would start the clock when they were first eligible for COBRA coverage if eligible prior to March 1, 2009.
Note that if an AEI becomes eligible for other coverage (such as Medicare or other group coverage) their subsidy will end. The participant is responsible for notifying the employer or Third Party Administrator of their eligibility for other coverage subject to a penalty equal to 110% of the subsidy.
Who pays the subsidy?
It would appear that whoever remits premiums to the insurance carrier, whether that is the employer or a Third Party Administrator (except for state mini-COBRA plans, which are typically handled by the insurer), pays the subsidy. It has been made clear that any subsidy paid by an employer or another entity on behalf of COBRA participants will be reimbursed via payroll credits applied for on Form 941, which has been updated to include questions on the ARRA COBRA subsidy. Additionally, if the credit due is greater than taxes due the Secretary of the Treasury will directly reimburse the employer, insurer, or TPA for the difference. Additional reporting requirements may be required.
How long is the special election period?
60 days from the time notice is sent to eligible individuals.
How long is the special Open Enrollment period (if offered)?
90 days from the time notice is sent to eligible individuals.
What notices must be sent and by whom?
UPDATE: A notice describing the legislation must be sent to ALL individuals who experienced a COBRA qualifying event from September 1, 2008 on regardless of whether or not they were involuntarily terminated. A separate notice is sent to all involuntarily terminations from September 1, 2008 forward not only describing the legislation but notifying them of their rights under the legislation, specifically to the subsidy and right to re-enroll.
A notice must also be sent to subsidy-eligible qualified beneficiaries who previously declined COBRA notifying them of their right to enroll for an effective date of March 1, 2009.
Additionally, a notice must be sent to current COBRA participants notifying them of their right to change to a lower-cost option, if available and if the employer chooses to offer this special Open Enrollment right.
Notices must be sent by employers or their contracted Third Party Administrator no later than 60 days after the enactment of the legislation (by April 18, 2009).