New COBRA Rules: Explained

The new stimulus law recently passed by congress provides a COBRA premium subsidy to assist recently terminated employees with the cost of their health insurance. The subsidy will cover 65% of the participant’s bill for up to nine months.

The new subsidy only applies to employees who lost or lose their job between September 1, 2008 and January 1, 2010. The law creating the subsidy requires that employers to notify all of their current COBRA participants of the new law. This notification can be handled through the group administrator or through a company’s COBRA benefits administrator such as Ceridian. Once the employees have been notified of the change they will have sixty days to notify their former employer of their decision to take coverage.

Only employees who lost their coverage due to involuntary termination are eligible for the COBRA premium subsidy. If you have employees who came off the group plan after September 1, 2008 they only apply to employees that were laid off involuntarily. If you had an employee leave your group plan due to voluntary termination, retirement, or a reduction in hours, they are not eligible for the COBRA premium subsidy. They are however, still eligible for regular COBRA coverage.

Employees who lost their coverage after September 1, 2008, but did not elect to take coverage at that time will have a second opportunity to elect coverage following the COBRA subsidy notice. COBRA coverage will still only be good for up to eighteen months from the date of their original qualifying event; their date of termination. The subsidy is good for up to and including nine months. After the nine months is up, the participants COBRA costs will return to the original cost. The participant will still be able to terminate their COBRA coverage anytime with-in the eighteen months that they are eligible for coverage. Once the participant reaches the eighteen month deadline, regardless of whether or not their nine month subsidy eligibility is up, they will no longer be able to be a COBRA participant on their former employer’s group coverage, meaning that they will have to find other coverage without the use of the stimulus subsidy.

Billing for subsidy participants will be much like normal COBRA billing except that the participant will only pay 35% of their total cost. The employer will cover the extra 65% of the cost. Once the bill has been paid the employer will deduct that 65%, plus any other COBRA subsidy participants’ 65% from wage withholding for their Federal Insurance Contributions Act (FICA) Payroll Tax. For instance, if your FICA taxes totaled $10,000 for a given period and the premium subsidies totaled $5000, your total tax load due to the government would be $5000. If your FICA taxes totaled to $5000 for a given period and the premium subsidies totaled $6000, the government would reimburse you that $1000 difference.

For the employer to claim these reimbursements from the IRS, they will be required to keep detailed supporting records for each COBRA subsidy participant. Your COBRA billing administrator (Ceridian) will keep track of which premiums have been received from participants as well as requiring individuals to certify their eligibility. Your administrator will then send you a monthly report detailing this information which you will be required to save as supporting record for your reimbursements from the government.

This is by no means a complete run-down of the changes made to the COBRA Omnibus under the American Recovery and Reinvestment Act, but these highlights should help you gain a better understanding of what these changes mean for you and your business. If you have any questions at all, please do not hesitate to call us and we will do our best to assist you.

Source

Ceridian

http://www.kiplinger.com/columns/ask/archive/2009/q0223.htm