The American Recovery and Reinvestment Act of 2009 (ARRA), also known as the “Economic Stimulus Bill” — which was signed into law on Feb. 17 — alters employer obligations and employee rights under the Consolidated Omnibus Budget Reconciliation Act (COBRA). In the current national economic crisis with its massive layoffs and firings, scores of people have found themselves unemployed and without the funds to pay COBRA premiums for continued medical insurance coverage.
Until now, COBRA premiums were often prohibitively expensive, amounting to 7-10 times the amount the employee was previously paying through payroll deductions. As a result, Congress has made important changes effective March 1, 2009, with a sunset date of Dec. 31, 2009.
Every employer, and each attorney representing employers or employees, should become familiar with these changes immediately, as they contain important notice requirements and tax implications. Each COBRA-eligible employee who is or has been involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009, now has the opportunity, under ARRA, to pay only 35 percent of the insurance premium that would have been due under the old rules. The federal government will subsidize the other 65 percent for up to nine months, by way of a tax credit to employers.
The Internal Revenue Service (IRS) has released detailed information for employers regarding the tax credit, available at the IRS Web site. The rate cut to eligible employees is not retroactive, meaning it only applies to coverage in effect as of March 1, 2009 or later. However, employees who were terminated on or after Sept. 1, 2008, and are currently paying into a COBRA plan are eligible for the rate cut beginning on March 1, until the end of the year.
While much of the public’s attention has been focused on eligibility for benefits under federal COBRA continuation coverage, an important point to note for attorneys representing employees or health care insurance providers is that the premium subsidy is also available to individuals who are eligible for continuation coverage under Florida’s “mini-COBRA” law, applicable to small employers (federal COBRA applies only to employers with 20 or more employees).
Importantly, the new requirements mandate that the employer send notice of the availability of the premium subsidy program to each employee who was separated from employment (whether involuntarily or otherwise) on or after Sept. 1, 2008. The idea behind this blanket notice requirement is to make sure that people who dispute the voluntariness of their separation from employment have an opportunity to claim that they were involuntarily terminated so that they may be eligible for the 65 percent tax cut.
The U.S. Department of Labor has issued four versions of model notices to be used by employers, including a Spanish language version, all of which are available at http://www.dol.gov/ebsa/COBRAmodelnotice.html. With regard to smaller employers subject to mini-COBRA laws, the responsibility for issuing such notices lies with the group health plan administrator that provides continuation. ARRA set a deadline of April 18, 2009 for the required notices to be sent to qualified individuals. Whether or to what extent there will be any civil penalties and/or attorney fees available to those qualified individuals who are not informed by their employers about these changes is not yet clear.
For eligible individuals who were or will be involuntarily separated from employment after Feb. 17, the date of ARRA’s enactment, the normal notification delivery rules apply. Such individuals must be notified of their regular COBRA election rights and their new rights under ARRA, no later than 44 days after their termination (30 days for the employer to notify the plan administrator, plus 14 days for the plan administrator to furnish the notice; 44 days when the employer is also the plan administrator).
Attorneys who represent terminated employees are advised to inform existing and future clients of the ARRA COBRA subsidy, so that informed decisions can be made about these important changes. For some clients, it may be necessary to review existing severance agreements or to reevaluate layoff situations that have recently occurred. Moreover, the “recapture” provisions of ARRA provide for substantial penalties against individuals who have elected to take part in the subsidy program, and subsequently fail to provide timely notice when they become eligible for group coverage from another source.