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New Subsidies to COBRA Premiums Under the American Recovery and Reinvestment

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| Legal Advisory

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), which included changes to COBRA requirements that affect employers with group health plans who involuntarily terminated employees after September 1, 2008. 

The Subsidy.  Under ARRA, “assistance eligible individuals” will only be required to pay 35% of the applicable COBRA premium to receive continuing coverage.  The federal government will provide reimbursement of the remaining 65% through a payroll tax credit to either the employer, the plan or the insurer depending on the type of plan through which insurance is provided.

Persons Eligible.  Assistance eligible individuals are employees, their spouses and their dependents who become eligible for COBRA continuation coverage because of an employee’s involuntary termination of employment between September 1, 2008 and December 31, 2009.  Employees of small employers (2 to 19 employees) in states with “mini-COBRA” statutes are also eligible for this subsidy.  Individuals with modified adjusted gross incomes of $125,000 ($290,000 for joint filers) or more for the tax year in which the subsidy would be received are not eligible for the subsidy.  Reduced subsidies are available for persons with incomes between $125,000 and $145,000 ($290,000 for joint filers).

The Time Period.  The subsidy is available for a maximum of nine months.  This nine month period will not extend the maximum period for which COBRA coverage is otherwise available and ends when the individual becomes eligible for coverage under another group health plan or Medicare.

Notices Required.  Existing COBRA notices must be modified to include the following: information about the availability of the subsidy; forms and contact information necessary to take advantage of the subsidy; the availability of any lower-cost health plan options; and, notification to individuals receiving the subsidy of their obligation to declare their eligibility for coverage under an alternative group plan, with a penalty for failing to provide this notice.  The Department of Labor will be issuing model notices by March 19, 2009.

Second Election Period.  Individuals who would have been eligible for this subsidy, but who previously declined COBRA continuation coverage, have a second 60-day period within which to elect continuation coverage with the subsidy.  The 60-day period begins to run upon the individual’s receipt of notice of the second election period.  Notice must be provided to these individuals by April 18, 2009.

This advisory was prepared by Labor, Employment and Benefits practice at Nutter McClennen & Fish LLP.  For more information, please contact your attorney at Nutter at 617-439-2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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