On February 13, 2009, the U.S. House and Senate both passed the final economic stimulus legislation, the “American Recovery and Reinvestment Act of 2009” (ARRA). President Obama is expected to sign the bill today, February 17th. While the Act addresses many different areas, there are several provisions that will directly affect most employers. One of the most critical provisions enhances continuation coverage benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

COBRA Subsidy

Individuals who meet certain eligibility requirements will be eligible to receive a 65 percent subsidy toward the cost of their COBRA health care premium for up to 9 months. Employers will receive a credit against payroll taxes for the cost of the subsidy. The subsidy would terminate if an individual becomes eligible for any new employer-provided or Medicare health coverage. (Certain penalties will apply if an individual fails to inform employer of such eligibility.) The subsidy is also phased out for individuals beginning with annual incomes of $125,000 (single) or $250,000 (couples).

Eligibility for the Subsidy

Individuals who have been involuntarily terminated between September 1, 2008 and December 31, 2009 and who were covered under a group health plan at the time of termination, are eligible for the COBRA subsidy. Their eligible dependents are also entitled to this premium assistance.

–New Election Period Applies

Eligible individuals who initially declined COBRA coverage must be given a new 60 day special enrollment period to elect this coverage. Once elected, this coverage will be retroactive to the first period of coverage beginning on or after the enactment date of the Act. (For example, if coverage is provided on a monthly basis, coverage would begin on March 1, 2009.) In addition, the time period from the date of an individual’s termination until the first period of coverage is not considered a lapse in coverage for purposes of any preexisting coverage exclusions.

–Changes in Elections are Allowed

Eligible individuals already enrolled in COBRA must also be given a special enrollment period and allowed to select lower cost coverage options. Again, these changes will be effective the first period of coverage beginning on or after the enactment date.

Revised COBRA Notices

Employers must update or supplement COBRA notices to include information on the availability of the premium assistance. According to the Act, the U.S. Department of Labor will issue model notices within 30 days after enactment of the Act.

Steps to Take Now

Employers should begin preparing for the impact of this Act by contacting their group plan insurer or COBRA administrators about their compliance plan. In addition, employers should begin gathering information about individuals who were involuntarily terminated on or after September 1, 2008, and who have either elected or were eligible to elect COBRA coverage at that time. Having this information ready will facilitate the process of notifying and processing payments under the Act.

We will provide you with additional updates as soon as they are available. In the meantime, please contact us with any questions.