This is Part 2, of a three part article. For Part 1, an introduction, see Employers, What You Need to Know About the Federal Stimulus Package: Part 1.
This article was written by Connie Chuang and Gage C. Dungy, attorneys with the labor and employment law firm of Liebert Cassidy Whitmore.
The Federal Stimulus Package Incorporates New Temporary
Revisions to COBRA/Cal-COBRA, Including a Federal Subsidy for
Qualified Individuals.
Introduction
Federal law (COBRA – employers with 20 or more employees) and California law (Cal-COBRA
– employers with 2-19 employees) provide individuals who have experienced a “qualifying
event” the ability to continue their health insurance benefits for a period of up to 36 months by
having the covered individual pay up to 102% of the full health insurance premium cost. A
“qualifying event” under COBRA/Cal-COBRA includes, among other reasons, voluntary
termination of employment, involuntary termination of employment (except for gross
misconduct), and a reduction in hours resulting in a loss of health benefits.
On February 17, 2009, President Barack Obama signed into law a federal stimulus package –
also known as the “American Recovery and Reinvestment Act of 2009” – in an attempt to
address the current economic downturn in the United States. Included in this federal stimulus
package are some temporary revisions to the implementation of federal COBRA and state Cal-
COBRA health insurance premiums for qualified individuals who were involuntarily terminated
from their job (e.g., termination of employment or layoff that is not the result of gross
misconduct) between September 1, 2008 and December 1, 2009. These temporary provisions
only apply to individuals affected by an involuntary termination, and not any other “qualifying
event” under COBRA/Cal-COBRA. Therefore, individuals who voluntarily terminated their
employment or who had a reduction in hours resulting in a loss of health benefits are not covered
under these temporary COBRA/Cal-COBRA provisions of the federal stimulus package.
A full copy of the federal stimulus package’s COBRA provisions can be found at:
http://www.dol.gov/ebsa/pdf/COBRAPremiumReductionProvision.pdf
Below is a summary of the impact of these temporary revisions to COBRA/Cal-COBRA.
Qualified Individuals on COBRA/Cal-COBRA Can Now Receive a 65% Federal Subsidy for Health Insurance Premiums for up to Nine Months.
Employees who were involuntarily terminated between September 1, 2008, through December 31, 2009, will be eligible for a 65% federal subsidy of their COBRA/Cal-COBRA health insurance premium payments. For example, an employee who normally pays $1000/month in health insurance premiums under COBRA/Cal-COBRA, would only be required to pay $350/month (35%) because the other $650 (65%) would be covered by this federal subsidy.
The federal subsidy ends after one of the following circumstances occurs (whichever comes first):
Nine months after the first receipt of the subsidy;
The employee becomes eligible for coverage on another employer’s plan (or Medicare); or
The maximum period of COBRA/Cal-COBRA coverage ends.
The subsidy plan became effective on the day the federal stimulus package was signed into law. However, for individuals whose health insurance premium payments are paid on a monthly basis, the plan becomes effective on March 1, 2009. Although the time period for qualification dates back to September 1, 2008, the federal subsidy does not apply retroactively before the effective date of the law.
Covered Individuals with High Annual Incomes Do Not Qualify for the Federal
Subsidy.
Covered individuals who have a modified adjusted gross income (AGI) of $125,000 per year (or $250,000 AGI for joint filers) will only receive a phased-out portion of the 65% subsidy. The subsidy will not be available at all to covered individuals with $145,000 AGI (or $290,000 AGI for joint filers). Although these “high income” individuals will not be screened before receiving the federal COBRA subsidy, they will be liable to pay-back any federal subsidies received that they were not eligible for as part of their federal income tax return for the covered year. As a result, “high income” individuals may want to opt-out of receiving this federal subsidy to avoid any federal income tax consequences.
Employers Can Also Allow Covered Individuals to Switch Health Insurance
Coverage.
The new provisions also permit an employer, at its option, to allow covered individuals who were involuntarily terminated to enroll in different health care coverage plans provided to other current employees so long as the premium for the different coverage is not higher. The new health care coverage cannot be coverage that provides only dental, vision, a health flexible spending account, or coverage for treatment that is furnished in an on-site facility maintained by the employer.
Qualified Individuals on COBRA/Cal-COBRA Can Now Receive a 65% Federal Subsidy for Health Insurance Premiums for up to Nine Months.
Employees who were involuntarily terminated between September 1, 2008, through December 31, 2009, will be eligible for a 65% federal subsidy of their COBRA/Cal-COBRA health insurance premium payments.
For example, an employee who normally pays $1000/month in health insurance premiums under COBRA/Cal-COBRA, would only be required to pay $350/month (35%) because the other $650 (65%) would be covered by this federal subsidy.
The federal subsidy ends after one of the following circumstances occurs (whichever comes first):
- Nine months after the first receipt of the subsidy;
- The employee becomes eligible for coverage on another employer’s plan (or Medicare); or
- The maximum period of COBRA/Cal-COBRA coverage ends.
The subsidy plan became effective on the day the federal stimulus package was signed into law. However, for individuals whose health insurance premium payments are paid on a monthly basis, the plan becomes effective on March 1, 2009. Although the time period for qualification dates back to September 1, 2008, the federal subsidy does not apply retroactively before the effective date of the law. (continue reading…)
The American Recovery and Reinvestment Act of 2009 (ARRA), signed into law in February, offers significant health insurance benefits to all those who are involuntarily terminated from a job between September 1, 2008 and December 31, 2009.