On March 24, 2009, the President signed the American Recovery and Reinvestment Act into law. The legislation included many benefits for those who are unemployed, including a change in the way COBRA premium payments are made.
The new law now requires employers to pay 65% of the COBRA premium and former employees to pay the remaining 35% for up to nine months. This employer subsidy is available to any individual involuntarily terminated between September 1, 2008 and December 31, 2009, but there are special provisions for those former employees with modified adjusted gross incomes exceeding $125,000 that would require them to repay the subsidy later or simply waive receiving it.
The good news is that employers are entitled to reduce the 65% premium payment from the FICA and federal income taxes they withhold from their current employees’ wages. As such, there is no new cost to employers to comply with this law.
The subsidy is effective starting for any COBRA premium due and payable March 1, 2009. Administratively, this may be difficult for employers to do. Realizing this, the new law provides employers a 60-day period within which they may refund the 65% to their former employees or provide a credit for future COBRA premiums.
Individuals who are eligible for COBRA on or after September 1, 2008 but who declined coverage or who selected it but lost coverage are given a 60-day “special election period” to join or rejoin. Should the individual elect the coverage during this 60-day period, the start date will be March 1, 2009 and coverage will end when the coverage would have otherwise ended. In other words, joining COBRA during the special election period does not extend the coverage beyond the individual’s original COBRA end date.
The “special election period” ends 60 days after notice describing this opportunity to join COBRA is provided to the individual from his former employer. The U.S. Department of Labor (DOL) is required to craft model notices for employers to use when disseminating information regarding the new employer subsidy and the new 60-day “special election period;” however, the law gives DOL 30 days within which to create these notices. As such, these notices will not be completed until March 19, 2009.
Until DOL provides the model notices, club managers should begin preparing to notify all former employees who are on, were on or who could have been on COBRA starting September 1, 2008 about this new employer subsidy and the “special election period.” In addition, you should begin to modify your current COBRA notices to assist in informing those who may be laid-off in the future about the new benefits.
It is clear there will be many administrative hurdles involved with implementing this new COBRA plan. It is also clear that the March 1, 2009 effective date gives employers very little time to truly prepare for their new requirements. Thus, clubs are encouraged to begin working to satisfy the responsibilities given to them under this new law immediately.
If your club uses a third-party COBRA administrator, you should contact that administrator to establish your club’s plan to comply with these new rules. If your club does not utilize a COBRA administrator, NCA recommends that you contact you club’s health plan provider and local counsel for answers to any specific questions you may have regarding the implementation of these new COBRA requirements.