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What are the Recently Legislated Changes for COBRA?
By Lisa Crosby, Vice President of Benefits, TriNetPeople are wondering what has changed with the recently passed COBRA legislation. In reality, there’s one single change that requires the attention of every business owner.
Under the recently passed American Recovery and Reinvestment Act of 2009, anyone who is involuntarily terminated from September 1, 2008 through December 31, 2009, will be given an opportunity to enroll in COBRA and pay only 35% of the COBRA premium for nine months. You can review more about this change on the IRS website.
Current law allows terminated employees to enroll in COBRA coverage for a maximum of 18 months (in most cases). And this new legislation allows involuntarily terminated former employees to pay only 35% of the COBRA premium for nine of those 18 months. The balance of the premium (65%) is paid by the employer who receives that amount from the Feds in the form of a credit against payroll taxes.
Employers will also be required to notify anyone who was eligible for COBRA since September 1, 2008, and who either didn't enroll or stopped paying premiums. These individuals will now be able to re-enroll effective March 1, 2009. As of March 1, anyone currently on COBRA or eligible for it because of this “look back rule” may start paying 35% of the COBRA premium for the next 9 months.
What You Need to Do
Here’s what needs to be done in order to comply with the legislative change:
1. Determine who is eligible for the subsidy.
2. Notify them with the required Department of Labor (DOL) notice. That notice has to be mailed no later than April 18, 2009.
The DOL has 30 days from the date of enactment of the American Recovery and Reinvestment Act (February 17, 2009) to create and make available guidelines and the required notices and an employee affidavit. The DOL's deadline for giving employers these materials is March 16, 2009.
3. Accept, receive and follow-up on the affidavits from the former employees. These are necessary to assert that they are indeed eligible for the 35% subsidy.
The affidavit is used to determine that an employee is currently not eligible for another employer's benefit program -- whether through their spouse or through other employment. There are other eligibility aspects to receiving the subsidy, like maximum income levels, but the “eligibility for another employer’s plan” is the one carrying the most personal tax implications.
4. Track receipt of the employee’s premium share and take a 65% tax credit for the balance of the COBRA premium. Then, that premium is used towards the remittances made every month for premiums to all of the insurance companies.
Who Pays the Remaining 65% of the COBRA Premium?
That's our tax dollars at work. Under the act, the Federal government will pay 65% of the cost for up to nine months for those terminated from September 1, 2008 through December 31, 2009. Read more here.
But.. Wait for the DOL
TriNet recommends that employers wait until the DOL issues further guidance before accepting the 35% payments. However, we do understand the urgency of giving these former employees relief from high COBRA premiums. So it is a good idea to take steps towards accepting the 35% premiums from those eligible participants that are currently enrolled as soon as possible. The rules for refunding “overpayments” or crediting them against future COBRA payments are onerous and time-sensitive, so accepting 35% payments for March premiums is the most efficient and effective way to proceed.
In the true spirit of this legislation, these former employees should be given a respite from the original COBRA premium amounts and allowed to feel the financial benefit of this stimulus right away.
Does this sound like too much work? Why not look into the possibility of outsourcing your HR function? Speak with a TriNet representative today. Call 888.874.6388 and mention this COBRA article, or contact us by using this form.