On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act into law to address the current economic downturn in the country. The law consisted of a 7-billion stimulus package that covered federal tax cuts, expansion of domestic spending for education, energy and infrastructure, and provisions for health care and unemployment benefits as well as social welfare clauses.
The COBRA stimulus package allots .7 billion to provide 65% COBRA subsidies for health care insurance premiums to qualified individuals for up to nine months following unemployment. Human resources departments in all businesses should be well-informed of the COBRA provisions in final stimulus package to ensure that access to health care for laid off employees will not be compromised.
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Complying with the new COBRA rules is a big challenge to employers especially because of the worsening recession. The new COBRA guidelines include criteria for eligibility for the 65% subsidy. Interestingly, however, the stimulus package was enacted without looking into its finer details so it's safe to assume that amendments are to be released in the future. For the moment, here are a couple of details that employers should bear in mind with respect to the new COBRA laws in the stimulus package.
What are the new laws?
The Consolidated Omnibus Budget Reconciliation Act is a law signed in 1985 to address health care assistance for those who have been put out of work or those who had to resign from their current jobs. It gives newly unemployed people the option to continue their health care insurance coverage while they are between jobs.
The problem with the original COBRA was that only a few people who were eligible actually used it, mainly because many of them could not afford the premiums after losing their jobs. Some people are lucky enough to have employers who cover the full cost of the insurance as part of their termination compensation, but most still have to foot the entire amount of the bill on their own.
Under the new COBRA guidelines, eligible individuals will only have to pay for 35% of their COBRA premiums in order to enjoy access to health care. The remaining 65% is reimbursed through payroll tax credit to either the employer or the insurer (as in the case of when the insurance policy is not subject to COBRA). Guidelines on how to claim the tax credit or how to file the claim are provided by the Secretary of the Treasury.
Who is qualified?
The stimulus package covers involuntary terminations, so only those who were laid off are entitled to the stimulus package. The individual should be qualified for COBRA from September 1, 2008 to December 31, 2009 as a result of involuntary loss of employment. Subsidy also covers spouse and other dependents eligible for COBRA coverage.
According to the new COBRA laws, full COBRA subsidies are available for those who have a modified adjusted gross income of 5,000 or less for individual filers. The COBRA provisions in final stimulus package also note that in case the individual's modified adjusted gross income is more than the limit, the individual's income tax will increase according to the amount of the subsidy.
As earlier mentioned, COBRA subsidies for every qualified individual will run for a maximum of nine months or until the individual becomes eligible for coverage from another health insurance provider (in case he finds another job before the limit is up).
What should employers do?
If your company is affected by the new COBRA laws, then you as the HR manager must give attention to the substantial requirements under the Act. Complying with new COBRA rules means reviewing severance arrangements of your company, as well as your health plans, to find out how you are affected by the laws.
Funding is also essential, as all employers must first provide the mandated 65% payment toward the COBRA premium and then seek reimbursement from the government later on. The new COBRA rules likewise imposes several obligations on employers and plan administrators. Quick action is necessary, as the subsidy segment of the new COBRA Act is applicable for coverage periods commencing on or after February 17, 2009 (or March 1, 2009 for those that use the calendar month).
Employers are also required to update their COBRA forms and notices and inform their payroll regarding premium reimbursements that should be treated as tax credits.
New COBRA Laws in the Stimulus Package - What HR Needs to Know Lawes
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