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Congress Signs Into Law New COBRA Requirements for Employers
by: Jennifer Duggan
In the past year, thousands of people have experienced the harsh reality of layoffs as a result of the gloomy economic conditions. Congress recently signed into law the American Recovery and Reinvestment Act of 2009 (ARRA) designed to facilitate the transition to unemployment.
COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) allows certain persons and their eligible dependants to extend employer provided group health coverage upon a qualifying event that would cause them to lose coverage. "Qualifying events" include, but are not limited to, divorce or loss of a job. Upon losing coverage, the person must make a timely election to participate in COBRA and pay the premiums. If the person fails to meet either requirement, the person's health insurance coverage will be discontinued.
ARRA temporarily reduces the premium for COBRA coverage for eligible individuals. Under ARRA, employees covered under a group health plan and involuntarily terminated between September 1, 2008 and December 31, 2009, have the right to elect COBRA coverage and pay only 35% of the normal COBRA premium. Employers are required to pay the other 65% and seek reimbursement from the government. This premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and may last for up to nine months.
The premium reduction is available to all "assistance eligible individuals." Assistance eligible individuals are those (1) who are eligible for COBRA continuation coverage at any time during the period from September 1, 2008 through December 31, 2009; (2) who elect COBRA coverage (when first offered or during the additional election period provided by ARRA; and (3) whose COBRA election opportunity relates to an involuntary termination of employment that occurred at some time from September 1, 2008 through December 31, 2009. If an employee is covered by non-employer provided group health coverage, Medicare or elects to participate in an employer-provided severance package, the employee is not eligible for the premium reduction. Also, if an employee is terminated for gross misconduct, the employee and any qualifying dependant generally will not be eligible for the premium reduction.
If the employee's group health plan is governed by California state insurance laws and is not subject to federal COBRA, ARRA allows assistance eligible individuals who elect to continue coverage to receive a premium reduction for up to 9 months.
Employers are advised to take careful note of their obligations under the new law:
1. Employers are required to pay 65% of the applicable COBRA premium if an eligible employee has elected COBRA coverage and timely pays 35% of the premium.
2. Employers are required to notify "assistance eligible individuals" and "qualified beneficiaries" of the new premium subsidy by April 18, 2009. The notices must include the following information:
•Forms necessary for establishing eligibility for the premium reduction
•Contact information for the plan administrator or other person maintaining relevant information in connection with the premium reduction
•A description of the second election period (if applicable to the individual)
•A description of the requirement that the Assistance Eligible Individual notify the plan when he/she becomes eligible for coverage under another group health plan or Medicare and the penalty for failing to do so
•A description of the right to receive the premium reduction and the conditions for entitlement
•If offered by the employer, a description of the option to enroll in a different coverage option available under the plan
The Department of Labor has provided model notices on its website that can be accessed at www.dol.gov/COBRA/.
For more information on the new COBRA requirements employers are encouraged to seek legal counsel.
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