In general, COBRA permits employees that are terminated (other than for gross misconduct) to continue to participate in their former employer’s health plan. The former employee is responsible for paying the associated insurance premium. COBRA applies to organizations that have at least 20 employees.
With the passage of ARRA the federal government has committed to pay 65% of the COBRA health insurance premiums for employees that have been laid-off since September 1, 2008. Laid-off individuals are eligible for this subsidy for up to nine months.
Who is eligible?
- Employees that have been involuntarily terminated (other than for gross misconduct) between September 1, 2008 and December 31, 2009.
- Individuals must earn less than $125,000 (phased out between $125,000 and $149,999) and couples $250,000 (phased out between $250,000 and $289,999). Based on income earned the year that the subsidy is received.
- Eligibility terminates upon the offer of new employer sponsored health coverage.
What are the mechanics?
- Employees will pay 35% of the premium.
- Employers will pay the remaining 65%.
- Employers will be “reimbursed” by off-setting current FICA payments by the amount of the COBRA premium paid.
- A new 941 has been issued by adding lines 12a and 12b so employers can claim the credit.
- Employers can also submit claims for reimbursement.
Practical Considerations
- No additional direct monetary cost to employers; only administrative costs.
- Covers all COBRA benefits including medical, dental and vision
- Previously terminated employees must be contacted and given the opportunity to elect coverage
- Policies and procedures need to be evaluated to ensure compliance with the new provisions
- Additional guidance and model notices are expected shortly from the DOL.