The American Recovery and Reinvestment Act (ARRA) provided a COBRA premium reduction for eligible individuals who were involuntarily terminated from employment through the end of May 2010. Due to the statutory sunset, the COBRA premium reduction under ARRA is not available for individuals who experience a qualifying event of involuntary termination of employment after May 31, 2010. However, individuals who qualified on or before May 31, 2010 may continue to pay reduced premiums for up to 15 months, as long as they are not eligible for another group health plan or Medicare.

On July 6, Assistant Secretary of Labor Phyllis C. Borzi issued a statement regarding the COBRA premium reduction under the American Recovery and Reinvestment Act (ARRA): For a copy of Assistant Secretary Phyllis Borzi’s statement, click on the following link:
http://www.dol.gov/ebsa/newsroom/2010/ebsa070610.html

The Unemployment Compensation Extension Act of 2010 signed by the President on July 22, 2010, did not include an extension of the COBRA premium reduction.

A model general notice and a model election notice for individuals with a qualifying event after May 31, 2010 can be obtained from the COBRA section on the DOL’s website at:
http://www.dol.gov/ebsa/COBRA.html

These notices are virtually unchanged from the pre-ARRA models provided by the DOL in 2004.

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The Temporary Extension Act:

1. Extends the COBRA subsidy program that was enacted under the American Recovery and Reinvestment Act and
2. Extends unemployment benefits through April 5, 2010.

COBRA

The law’s COBRA provisions:

• Extend the eligibility period for the 15-month 65 percent premium subsidy to those involuntarily terminated from March 1 through March 31, 2010.

• Allow employees to receive the subsidy if they first lost group coverage due to a reduction in hours and then were terminated after enactment of the bill.

Unemployment Insurance

The law’s unemployment insurance benefit provisions:

• Extend the period during which individuals may file applications for Federal Emergency Unemployment Compensation (EUC) from the current end date of February 28, 2010 to April 5, 2010 and the period during which individuals may claim and be paid EUC is extended from July 31, 2010 to September 4, 2010.
• Extend the period during which individuals may qualify for the Federal Additional Compensation (FAC), the extra $25 weekly benefit amount on state and federal unemployment compensation, from the current end date of February 28, 2010 to April 5, 2010 with weekly payment provided during the phase out period for weeks ending October 5, 2010 instead of August 31, 2010.
• Extend the period during which 100% federal reimbursement for weeks of regular federal extended benefit payments to April 5, 2010, with the state option to continue the extended period from July 31, 2010 to September 4, 2010.

Additional Extension

These “short-term” extensions of the COBRA subsidy and unemployment benefits are intended to give Congress more time to consider legislation to extend these programs through 2010.  Under H.R. 4213, a bill the Senate is currently debating, both the COBRA subsidy program and unemployment benefits would be extended through December 31, 2010.

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One of the provision of the ARRA provides COBRA premium assistance for employees who are involuntarily terminated from Sept. 1, 2008, to Dec. 31, 2009. Qualified participants pay 35 percent of the COBRA premium, with the remaining 65 percent subsidized by the employer and reimbursed by the federal credit to the employer’s payroll taxes.

“From March 2009 to June 2009, monthly COBRA enrollment rates for Americans eligible for the subsidy averaged 38 percent, up from 19 percent for the period of September 2008 through February 2009,” Hewitt said. Industrial manufacturers experienced an 800 percent increase in COBRA enrollments following enactment of the subsidy, while construction, leisure, and retail businesses experienced a 300 percent increase in enrollments, Hewitt found.

Find out more about the analysis here.

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 The issue facing business owners is that they must pay 65 percent of the COBRA premium and then file for reimbursement through a payroll tax credit.  Employees pay the other 35 percent.  This discounted rate could potentially cause a dramatic increase in COBRA election by former employees.

 To avoid substantial penalties, employers were required to mail out COBRA notices by April 18, 2009 to eligible employees who had been laid off since September 1, 2008.  This new regulation affects most companies with 20 or more employees.

Some companies are worried that the federal requirement could cause cash flow problems because of the up-to-three-month delay for reimbursement.  And cash flow problems could cause some financially strapped companies to lay off more employees, freeze or cut salaries, or eliminate some benefits.

How the new COBRA rules work:

• The federal government will provide a 65 percent subsidy for up to nine months of the COBRA premium retroactive to March 1 for certain terminated employees.
• To be entitled to the subsidy, employees must have been involuntarily terminated between September 1, 2008, and December 31, 2009, and must be eligible for COBRA.
• A special election period exists for individuals involuntarily terminated on or after last September 1 who had not elected COBRA.  They will have 60 more days after receiving the notice to elect coverage, which is retroactive to March 1 if they lost their jobs before then.
• The employer pays the 65 percent on the employee’s behalf and is then reimbursed through a payroll tax credit.  Large companies may be reimbursed either weekly or monthly, but smaller employers must file for the credit with their quarterly payroll taxes.
• The employee must pay 35 percent of COBRA before the employer can request reimbursement of the other 65 percent.  Employers that do not charge the full COBRA premium will not be entitled to reimbursement of 65 percent of the maximum COBRA premium.

 For more information, visit www.irs.gov/pub/irs-drop/n-09-27.pdf or www.dol.gov/ebsa/cobra.html

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The Staff One HR Outsourcing Business Stimulus Program is designed for businesses with fewer than 750 employees. Participants in the program will receive a wide array of HR services that are typically only available to FORTUNE 500 companies.

For additional details on the program, companies can visit www.staffone.com/stimulus. To qualify for the program, companies must contact Staff One prior to April 15, 2009 and become a client by June 1, 2009. Existing clients are not eligible for the program.

To read the full press release, click here.

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• The provisions in ARRA providing this subsidy are effective as of the date of the President’s signing.
• Eligible workers may receive a 65% subsidy toward their COBRA continuation premium for up to 9 months. Previously any individual enrolling in COBRA was responsible for 100% of the cost of the coverage, plus a 2% administrative fee.
• The Treasury Dept. will administer the subsidy, providing employers or health plans, if they administer COBRA benefits, with a credit against payroll taxes for the cost of the subsidy.
• The subsidy terminates the date the individual becomes eligible for any new employer-sponsored health plan or Medicare coverage.
• Individuals involuntarily terminated from employment between September 1, 2008 and December 1, 2009 and who have annual incomes less than $125k (single) or $250k (joint filers) for the taxable year in which the subsidy is received are eligible for the COBRA assistance, along with their families.
• Qualified individuals who initially decline COBRA coverage prior to ARRA will be given an additional 60 days after they receive notice of the special election period to elect to receive the subsidy.
• The special election opportunity is also available to a qualified beneficiary who elected COBRA coverage but who is no longer enrolled on the date of enactment of ARRA, for example, because the beneficiary was unable to continue paying the premium.
• COBRA notices must include information on the availability of the premium assistance and must be provided to all individuals who terminated employment during the applicable time period, not just individuals who were involuntarily terminated.

The Department of Labor has 30 days after the enactment of ARRA to issue model notices for use by employers.

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