New COBRA Requirements for Employers



Posted: Friday, February 27, 2009

by Michele O'Donnell
MMC, Inc.

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 ("ARRA").  The ARRA has two key measures which immediately impact displaced workers.  One, unemployment insurance benefits are extended and states are encouraged to modernize their existing unemployment insurance benefits administration. Two, the ARRA provides a subsidy for post-employment medical insurance coverage under COBRA.

COBRA or the Consolidated Omnibus Reconciliation Act, allows qualified workers to continue their health insurance coverage when employment ends. The passage of the ARRA creates a 9-month, 65% premium subsidy, for displaced workers who elect to continue insurance benefits through COBRA. The subsidy is available to individuals who are involuntarily terminated from employment between September 1, 2008 and December 31, 2009. The subsidy will extend to the premiums that must be paid by displaced workers to cover spouses and dependants as well.

Beginning March, 2009 individuals who elect COBRA benefits will be required to pay 35% of their healthcare benefit premiums.  The remaining 65% must be assumed by the healthcare plan or the employer, depending on how the plan is funded.  Nonetheless, under COBRA, healthcare benefits can continue for up to 18 months (or longer in some circumstances).  It is important to note that the ARRA does not extend the 18-month COBRA continuation period. Eligibility for the subsidy provided by the ARRA, however, ends when either an individual becomes eligible for either another health plan (including Medicare) or when the 9-month subsidy period ends, whichever occurs first.

To comply with the ARRA, the onus is on individual employers who are required to contact displaced workers in writing who declined COBRA coverage and to inform those eligible individuals that they can elect subsidized COBRA coverage.  Displaced workers will then have sixty (60) days from the date of receiving a written notice of the subsidy to decide whether they wish to use subsidized COBRA coverage.

How will the 65% subsidy be paid?  Well it will be assumed through either a reimbursement to the payer by a tax credit taken against quarterly payroll for current employees. The IRS has released a new version of the 941 Employer Quarterly Federal Tax Return for 2009 which will allow for the reporting of COBRA premium assistance payments credit.  If the credit is not sufficient to cover the payer's COBRA expenses, the remainder will be reimbursed directly from the U.S. Treasury Department.

Michele O'Donnell joined the MMC team in January 2007 and currently leads MMC's elite team of HR Consultants. Ms. O'Donnell has been involved in the Human Resources industry for more than 14 years, bringing vast training and management experience to the MMC leadership ranks. Her experience spans the broad scope of labor law, regulatory compliance and HR Best Practices, drawn from her rich experience as Director of HR for several firms throughout her career. She currently works to ensure that MMC's consultants forge long lasting relationships with our clients, fostered in exceptional service and unsurpassed HR expertise.  Ms. O'Donnell earned her baccalaureate degree in Business Administration from Auburn University before receiving her Masters degree in Human Resource Management from Troy State University. Learn more about MMC’s comprehensive HR services at http://www.mmchr.com

This Article has been viewed 1,092 times. (Not updated in real-time.)
No comments yet.
We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.