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President Obama signed the American Recovery and Reinvestment Act of 2009 last week. Generally known as the economic stimulus law, it creates new COBRA rules intended to help those who were involuntarily terminated from employment (i.e., fired or laid off) between September 1, 2008 and December 31, 2009 and lost their group medical plan coverage.

These individuals, referred to as “assistance eligible individuals,” are entitled to a nine-month, 65-percent federal subsidy of the required COBRA premiums. The new COBRA rules also require employers to develop new COBRA notice documentation and COBRA payment administration procedures. Employers will bear the cost of the subsidy, but will be reimbursed via payroll tax credits. If the subsidy exceeds payroll taxes, employers can follow certain procedures to claim a direct reimbursement.

Coverage begins in the first period of COBRA continuation coverage after the law was passed. For example, if premiums are charged on a calendar month basis, then the subsidy will be applied starting March 1, 2009. The subsidy ends at the earliest of these milestones:

• An individual becomes eligible for subsequent coverage;
• Nine months following the first subsidy expires; or
• the maximum COBRA coverage period expires.

Employers also are required to provide cash refunds or credits to assistance eligible individuals who pay the full COBRA premium for coverage while the subsidy applies.

Extended election period

Before April 18, 2009, Employers must notify employees who were involuntarily terminated between September 1, 2008 and February 17, 2009, and who waived COBRA coverage or are no longer covered, and let them know that subsedized coverage is available. These employees have 60 days to elect COBRA coverage.

What Employers Should Do Now:

The Department of Labor will issue a new sample COBRA notice by March 19, 2009. Until then:

• Learn about the new COBRA rules under the stimulus law.
• Watch for more guidance about the new rules
• Identify all assistance eligible employees (past and future);
• Develop plans to notify assistance eligible employees of the new COBRA
• Determine the correct premium subsidies to apply;
• Develop accounting and other processes to capture data needed to seek the federal subsidy and report the detail when required;
• Amend plan documents, plan group insurance contracts, and plan administration contracts;
• Contact the plan’s COBRA administrator and ensure compliance steps are taken; and/or
• Contact your employment attorney.

Tags: administrators, American Recovery and Reinvestment Act of 2009, assistance eligible individuals, COBRA, Department of Labor, economic stimulus law, employers, fired, human resources, involuntary termination, laid off, termination

This entry was posted on Friday, February 27th, 2009 at 3:32 pm and is filed under business law, economy, employment law. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.