California Labor &
Employment Law Blog
Feb 17, 2009

The Stimulus Bill’s Impact on COBRA

Topics: Legal Information

The stimulus bill that Obama will sign today (The American Recovery and Reinvestment Act of 2009) is not employment legislation, but it does have some important provisions related to COBRA. The most important and talked about change to COBRA is the 65% subsidy the government is providing for certain eligible COBRA participants. Under this provision there is a 65 percent subsidy, advanced by the employer or plan sponsor and then recouped via a credit against payroll tax submissions. The subsidy is available to eligible individuals for up to nine months. There is a lot more detail to the COBRA modifications than we can put in a single blog posting, but here are some of the basics:

ELIGIBILITY FOR COBRA SUBSIDY

To be eligible for a subsidy, all of the following must occur:

1) The employee must have been involuntarily terminated on or after September 1, 2008 and before January 1, 2010.

2) The employee must pay 35% of the COBRA premium.

3) The employee must have previously elected COBRA or elects COBRA coverage during the new special election period which runs from the time the Act is passed and ends sixty days after the plan administrator sends out the newly required notice of this new special election period.

4) The employee must have a qualifying income which means he or she must have annual taxable income of less than $125,000 for an individual or $250,000 for a couple in order to receive (and be allowed to keep) the full subsidy. There is a gradual phaseout of the subsidy allowance for AGI between $125,000 and $145,000 for an individual, and between $250,000 and $290,000 for a couple.

OTHER IMPORTANT TERMS SURROUNDING COBRA SUBSIDY

APPLICATION - The COBRA subsidy applies to general health insurance plans. It does not apply to dental or vision-only plans, counseling plans, health care flexible spending accounts or HRAs.

TIME - For group health plans that pay monthly premiums, the subsidy provisions become applicable March 1, 2009 (assuming Obama signs the Act this month as indicated).

NEW NOTICE REQUIREMENTS - All newly COBRA eligible participants who are involuntarily terminated between now and December 31, 2009 must be given a notice outlining the subsidy provisions. In addition, a new notice must be sent out to any employee who was previously involuntarily terminated after September 1, 2008 re-offering a new COBRA election, along with notice of the subsidy provisions. As indicated above, this second category of noticed employees will then have a new 60 day window in which to elect COBRA coverage back to the date of the involuntary termination, but the employee will only receive the subsidy prospectively. The people who are likely to take advantage of this second retroactive "bite of the apple" are those that were involuntarily terminated and then suffered from a medical problem leading to substantial uninsured medical expenses that exceed the cost of COBRA. The Act requires the Department of Labor to publish new notices for these purposes within 30 days of the Act's enactment.

EXPIRATION - The subsidiary expires after 9 months or when the employee becomes eligible for other group health insurance, whichever comes first. The employee is required to notify the plan administrator if he or she does become eligible for other group health coverage and if he or she does not, certain penalties can be applied.

INVOLUNTARY TERMINATION - The act fails to define the term "involuntary termination." Based on other statutes, this term is likely to include layoffs and any other termination that is not for misconduct or was not a voluntary quit.

THINGS TO DO

Probably the two most important things that employers and health plan administrators need to do are:

(a) determine who was previously involuntarily terminated after September 1, 2008 and thus who will be eligible for the new COBRA notice; and

(b) establish administrative procedures to ensure compliance with all of the new COBRA provisions of the Act and get them implemented.

About CDF

For over 25 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor

Robin Largent has a regular presence in California state and federal courts and has been lead defense counsel and appellate counsel for large and small California employers in litigation (and arbitration) ranging from individual discrimination and harassment claims to complex wage and hour representative and class actions. She also leads the firm’s appellate practice, having substantial experience and success handling appeals, writ petitions, and amicus briefs in both state and federal court on issues such as class certification (particularly in the wage and hour arena), manageability and due process concerns associated with class action trials, exempt/non-exempt misclassification issues, meal and rest break compliance, trade secret/unfair competition matters, and the scope of federal court jurisdiction under the Class Action Fairness Act.
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