Many employees who lose their jobs also lose health insurance because they cannot afford to pay the applicable COBRA premium.Under the recently enacted American Recovery and Reinvestment Act of 2009, certain individuals who are eligible for COBRA continuation health coverage may now be eligible to pay a reduced premium amount, equivalent to 35% of the premium for COBRA, for up to 9 months. This reduced premium is made possible by a government paid subsidy, "fronted" by the employer, for the remaining 65% of the COBRA premium cost. Please refer to the following questions and answers for important information about how the COBRA premium reduction may affect you:
Q: Who is eligible for the subsidy?
The subsidy is available to employees who are, involuntarily terminated on or after September 1, 2008 but before January 1, 2010 (the last date to qualify is December 31, 2009) and who are eligible for, and elect, COBRA continuation coverage (or similar State coverage). The spouses and dependants of these employees, who are otherwise entitled to COBRA coverage are also eligible. Please note that employees terminated for "gross misconduct" are not eligible, since they are not entitled to elect COBRA continuation under already existing COBRA rules.
There exists a phase-out of eligibility for the subsidy based upon income. Accordingly, those individuals whose modified gross income is less than $125,000, or $250,000 for those filing joint returns, are entitled to recieve the entire subsidy tax free. However, individuals, or joint filers, with modified gross income above those amounts will be required to repay a portion of the subsidy, and the subsidy is phased out completely for individuals whose adjusted gross income exceeds $145,000, or $290,000 for those filing joint returns. For those individuals, the subsidy would have to be repaid completely as an additional tax. The Act provides that persons who earn in excess of these amounts may choose to permanently waive the subsidy by notifying the employer of the waiver.
For individuals who were involuntarily terminated between September 1, 2008 and February 16, 2009 (the day before the Act became effective) but did not enroll in COBRA continuation coverage, those individuals will have a second opportunity to enroll. Under the Act, a plan is required to notify such individuals of the second election period by April 18, 2009, after which time they have 60 days to enroll in COBRA coverage with the premium reduction. Individuals that elected COBRA coverage during this period and paid the full premium during this period will be eligible for reimbursement of the premium subsidy or a credit against future premium payments.
Q: How long does the subsidy last?
The subsidy can last up to 9 months. However, the subsidy will end earlier if:
1) an individual becomes eligible for Medicare or another group health plan (such as a plan sponsored by a new employer or a spouse's employer); or
2) an individual reaches the end of their maximum COBRA coverage period.
An individual must notify a plan if they become eligible for coverage for another group plan or Medicare. Failure to do so will result in a tax penalty.
Q: How is the subsidy paid?
An employer is required to pay 65% of the COBRA premium upon receipt of payment for 35% of the premium from the employee. The employer submits this payment on the employee's behalf and can then seek reimbursement from the government through a payroll tax offset.
Q: What action is my employer and/or plan administrator required to take?
For involuntary terminations that occur after February 17, 2009, plan administrators (and employers, if they are the plan administrator) are required to give notice of premium subsidy to terminated employees and their spouses within 44 days of the termination. However, because the Department of Labor did not issue a Model notice until March of this year, plan administrators had the option of waiting to issue the notice. In that event, however, the 60 day period in which to elect the COBRA coverage with the premium subsidy does not commence until the notice is issued.
For persons terminated involuntarily after September 1, 2008, and before the Act's enactment date, plan administrators must provide notice of the premium subsidy on or before April 18, 2009. These indivuduals will have 60 days after the notice is issued to elect coverage with the premium subsidy.
Q: What can I do if my employer refuses to pay the subsidy?
Persons who are eligible for the subsidy, but are not provided the subsidy by their employer, may appeal the denial directly to the Department of Labor. A decision will be issued within 15 days after reciept of the application for review. However, procedures for initiating such an appeal have not yet been issued by the Department of Labor. An official application form will be designated for such appeals. This form will soon be available at: www.dol.gov/COBRA, along with instructions for submitting the form.
If you believe you have been inappropriately denied eligibility for the premium reduction, you may wish to speak with an Employee Benefits Security Administration Benefits Advisor at: 1-866-444-3272 before filing this form.