The federal stimulus package signed in February, the American Recovery and Reinvestment Act of 2009 (ARRA), will affect COBRA benefits. Changes went into effect on March 1 for most plans.
First, the bill will subsidize 65 percent of the cost of COBRA continuation coverage for up to nine months for “assistance eligible individuals.” These are people who lost their jobs between September 1, 2008 and December 31, 2009 for reasons other than gross misconduct, and who have a modified gross adjustable income of less than $125,000 if single, or $250,000 if married, for each year in which the subsidy is received. Eligible individuals already receiving COBRA coverage will not get a rebate; however, they will begin receiving the subsidy in March.
Second, the bill gives eligible individuals who did not enroll in COBRA when they first qualified another 60 days in which to apply. Employers, or their health plan providers, must notify eligible individuals by March 1.
Third, employers can offer assistance-eligible individuals the option to enroll in any other health plan they offer their active employees, as long as premiums are less than the COBRA coverage. The provision applies to health plans only and specifically excludes health care FSAs, most HRAs and on-site medical clinics.
Finally, the bill would extend the maximum COBRA coverage period to 24 months for individuals receiving a health care tax credit (HCTC) because they lost their job due to foreign competition and are eligible for trade adjustment assistance (TAA).
Under the subsidy arrangement, employers will pay the 65 percent share of COBRA premiums and receive an offset in their employment tax deposits. They will report the amount of the subsidy and number of recipients on a revised IRS Form 941.
Many employers fear the COBRA expansion will increase their healthcare costs, since less-healthy individuals are more likely to elect coverage, driving up utilization rates. Others are more likely to use their benefits to the maximum, knowing that their coverage is limited. It also increases plan sponsors’ administrative duties. For more information, please contact us.