Employers Move Quickly for New COBRA Provisions

The American Recovery and Reinvestment Act of 2009, which was signed into law on February 17, 2009, provides employees laid off since September 1, 2008 through December 31, 2009 with as much as a nine-month subsidy to help them continue receiving their employer's health benefits. The former employees are eligible to pay 35% of the cost of the monthly premium as opposed to the standard cost of 102% if their gross income is less than $125,000 for individuals or less than $250,000 for couples. The government will cover the remaining 65% of the cost of the premium. The subsidies will be provided on a sliding scale for individuals who make between $125,000 and $145,000 and couples making between $250,000 and $290,000.

The subsidy must be made available to all qualifying individuals, including those who have already declined COBRA continuity. Employers must allow workers to switch to lower-cost health plans if they are available.

The subsidy ends after nine months or when an individual becomes eligible for other group medical coverage. When that happens, members are required to notify the health plan that they've found other coverage. If they fail to notify the plan, they will be required to pay 110% of the premium beginning at the time they first became eligible for other group medical coverage.

Employees will pay 35% of the cost of their premium and employers with self-funded health plans will pay the balance and will then deduct this cost from the amount normally paid toward payroll taxes on their quarterly return of payroll taxes, form 941.

Employers are required to comply with these provisions commencing at the beginning of the first coverage month after the act's approval which is March 1, 2009 for most employers.

Small-employer plans with fewer than 20 employees on a typical business day are exempt from COBRA requirements.