Payment/Reimbursement of Subsidies

The payment of the 65% federal subsidy for COBRA/Cal-COBRA health insurance payments will initially come from the employer.  Employers who receive the 35% of COBRA/Cal-COBRA premiums from covered individuals will then be reimbursed for the 65% federal subsidy through credits applied to federal payroll taxes.

In the beginning, some covered individuals may not become aware of the new federal subsidy and therefore continue to overpay their COBRA/Cal-COBRA premiums by paying the full premium amount.  In order to reimburse the covered employee in this situation, employers will have an initial choice of either providing a refund or a credit to be used against future premium  payments.  The credit option is only available if it is expected that the full credit will be used by the individual within 180 days of the date the full COBRA premium amount was paid.

Qualified Individuals Who Did Not Previously Elect COBRA Benefits Are Now  Eligible for a Second Chance to Elect Such Benefits.

Qualified individuals who did not elect COBRA coverage and were involuntarily terminated between September 1, 2008 and February 16, 2009 are now given a second chance to elect coverage under the federal stimulus package.  Covered employers must provide a second COBRA eligibility notice within 60 days of February 17, 2009 to eligible individuals who did not elect COBRA coverage. Eligible individuals who did not elect COBRA coverage will now have an additional 60 days from their receipt of the second COBRA notice to elect COBRA coverage.

Although the federal subsidy payments apply to both COBRA and Cal-COBRA covered individuals, it does not appear that this “second chance” COBRA election applies to those who would have only qualified for benefits under Cal-COBRA.

Notice and Reporting Obligations

In light of these new provisions, employers are required to send written notices to eligible beneficiaries of the change regarding, among other things, the federal subsidy, the opportunity to enroll in different coverage if the employer permits it, and the extended election period.   Employers are required to send these notices to eligible individuals by April 18, 2009 (60 days from the implementation into law of these new provisions).  The Department of Labor plans to publish sample written notices on or before March 19, 2009.

The new provisions also include new reporting requirements for employers. Employers who receive COBRA/Cal-COBRA premiums must submit reports including social security numbers of eligible employees, the subsidy amount for each employee, and designation of whether coverage is for one individual or for two or more individuals.  Other reporting requirements may apply.

Conclusion

With the subsidy resulting in covered individuals only having to pay about one-third of their COBRA/Cal-COBRA health insurance premiums, employers with many recent involuntarily terminations and layoffs should expect a surge in covered individuals electing for COBRA/Cal-COBRA health insurance benefits.

As a result, employers will need to review and update their  COBRA/Cal-COBRA plans and determine which employees may qualify for these provisions.

Employers should also contact their health plan administrators, if applicable, to ensure that these temporary provisions are implemented appropriately.  Employers with any questions regarding how to implement these new temporary COBRA/Cal-COBRA provisions should contact any one of LCW’s offices.