Submitted by: Michael Padgett, IndySHRM Director of Legislative Affairs
The recently-enacted American Recovery and Reinvestment Act of 2009 (otherwise known as the “Stimulus Bill”) makes significant changes to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) that will affect every employer that sponsors a group health plan for employees and has terminated or laid off an employee on or after September 1, 2008. These amendments create additional COBRA notice requirements and affect payroll tax administration in order to administer a temporary federal subsidy of COBRA premiums. Employers will have to act quickly to implement the new requirements, which will include locating certain former employees and coordinating payroll and COBRA administration.

Under the Act, for COBRA coverage periods beginning on or after the date the Act is signed into law, “assistance eligible individuals” will be required to pay 35% of the applicable COBRA premium. Employers will need to cover the remaining 65% of the premiums until reimbursement can be requested from the federal government. Employers that provide coverage through insurance or self-insurance will be able to obtain reimbursement of the 65% premium subsidy as a credit against their quarterly federal employment tax filings. The language of the Act suggests the subsidy would apply regardless of the level of coverage (single, single plus one, family, etc.). Individuals who are or were otherwise eligible for COBRA continuation coverage, who lost coverage under their employer-sponsored group health plan due to an involuntary termination of employment between September 1, 2008 and December 31, 2009, AND who elect COBRA continuation coverage are “assistance eligible individuals” under the Act. Additionally, Congress recognized that many individuals who were recently terminated may have declined to elect COBRA continuation coverage because of its cost. Accordingly, the Act requires employers to locate former employees who previously declined COBRA and provide notice of the right to COBRA coverage with the government subsidy.

Generally, the subsidy is available for up to 9 months, but can end sooner, such as when the maximum continuation coverage period under COBRA expires. (The statute does not extend the maximum COBRA continuation coverage periods.) Additionally, the subsidy will cease to be available for COBRA coverage following the date an assistance eligible individual becomes eligible for: (1) coverage under any other group health plan (other than one consisting only of dental, vision, counseling or referral services); (2) coverage under a health flexible spending account plan; (3) coverage of treatment at certain employer on-site facilities; or (4) Medicare or Medicaid.

This bulletin only provides a general overview of the COBRA changes made in the Stimulus Bill. Covered employers are strongly encouraged to follow up on their obligations with regard to this temporary notice and subsidy requirement.