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Current Status of COBRA Premium Reduction Under ARRA.

Employers beware: The subsidy has been extended.

Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. The involuntary termination must occur during the period that began September 1, 2008 and ends on February 28, 2010. The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.

Under the old COBRA guidelines, qualified individuals were required to pay the entire premium for plan coverage and with the latest stimulus package, also referred to as the American Recovery and Reinvestment Act (ARRA) of 2009, a provision has been enacted to reduce the COBRA health coverage premiums by 65% for those who qualify. Ultimately, a great benefit for those who may otherwise find it difficult to pay the entire premium while being without work.

So, What are the changes regarding COBRA continuation coverage under ARRA, as amended by the Department of Defense Appropriations Act (2010 DOD Act)?

• The 2010 DOD Act extended the COBRA premium reduction eligibility period for two months until February 28, 2010 and increased the maximum period for receiving the subsidy for an additional six months (from nine to 15 months).
• Individuals who had reached the end of the reduced premium period before the legislation extended period to 15 months will have an extension of their grace period to pay the reduced premium. In order to continue coverage individuals must pay 35 percent of the premium costs by February 17, 2010, or, if later, 30 days after notice of the extension is provided by their plan administrator.
• Those who lost their subsidy and paid the full 100 percent premium in December 2009 should contact their plan administrator or employer sponsoring the plan to discuss a credit for future months of coverage or a reimbursement of the overpayment.

Eligibility for the Premium Reduction:

The premium reduction for COBRA continuation coverage is available to "assistance eligible individuals". An "assistance eligible individual" is the employee or a member of his/her family who:

• has a qualifying event for continuation coverage under COBRA or a State law that provides comparable continuation coverage, that is the employee's involuntary termination at any point from September 1, 2008 through February 28, 2010;
  
• and elects COBRA coverage timely.

Who is not eligible?

• Those who are eligible for other group health coverage (such as a spouse's plan) or Medicare are not eligible for the premium reduction. There is no premium reduction for premiums paid for periods of coverage that began prior to February 17, 2009.
• The subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.

Period of Coverage:

The premium reduction applies to periods of coverage beginning on or after February 17, 2009 and ends:

• upon eligibility for other group coverage (or Medicare)
• after 15 months of the reduction,
• or when the maximum period of COBRA coverage ends, whichever occurs first.

Notice Requirements:

Under ARRA, as amended, certain notices are mandatory:

• As part of the COBRA election notice, plan administrators must provide information about the premium reduction to all individuals who have COBRA qualifying events from September 1, 2008 through February 28, 2010.
• Plan administrators must also provide notice about changes made to the premium reduction provisions of ARRA by the 2010 DOD Act to individuals who have already been provided a COBRA election notice (unless the election notice included the updated premium reduction information).

Employers must provide this notice to individuals:

» who are "assistance eligible individuals" by February 17, 2010;

» who experience a termination of employment on or after October 31, 2009 and lose health coverage must be provided this notice within the normal timeframes for providing continuation coverage notices; and

» who are in a "transition period" (a period that begins immediately after the end of the nine months of premium reduction in effect under ARRA before the amendments made by the 2010 DOD Act, as long as those nine months ended before December 19, 2009 and the premium reduction provisions of the 2010 DOD Act would apply due to the extension from nine to 15 months). Notice must be provided within 60 days of the first day of the transition period.

For more information, contact Teressa Copeland at 817-508-7306 | tcopeland@odysseyonesource.com

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