for my laid off peeps...
President Obama signed the $787 billion dollar American Recovery and Reinvestment Act of 2009 [hereinafter, The Act] into Law on Tuesday, February 17, 2009. In part, The Act addresses a COBRA premium subsidy program that affects Employers and Plan Sponsors, who are subject to state or federal COBRA.
COBRA:
The Employers and Plan Sponsors must provide premium subsidies of no less than 65% of regular COBRA premium to "Assistance Eligible Individuals" beginning March 1, 2009. Further, Employers and Plan Sponsors must provide notice of the subsidy's availability to all eligible individuals within 60 days of the law's enactment.
In effect, Employers and Plan Sponsors will immediately face significant new notifications and premium payment responsibilities. The Act applies to those individuals who have lost their jobs [or will lose their jobs] or lost coverage as a result of a reduction in work hours for any reason (other than gross misconduct) between September 1, 2008 and January 1, 2010.
Who is Eligible: a COBRA Qualified Beneficiary is an Assistance Eligible Individual If:
* The Qualified Beneficiary elects [or has elected] COBRA Coverage and the Qualifying Event occurred on after September 1, 2008 and before January 1, 2010 through involuntary termination of coverage
* Assistance Eligible Individuals include spouses and/or dependents of employees covered under the health plan at the time of the Qualifying Event who would also have lost coverage as a result of the involuntary termination
* If the Assistance Eligible Individual was without coverage beginning on the date of the Qualified Event and ending with the first period of coverage [i.e., March 1, 2009] then this period is disregarded for purposes of calculating the 63 day break in coverage under the creditable coverage rules.
Exclusion of Eligibility:
* High income individuals who take the subsidy will be subject to increased tax liability for any subsidy taken beyond the new law's income threshold. A "High Income Individual" is any taxpayer with modified adjusted gross income of $145,000 in the year in which he/she took the subsidy ($290,000 for individuals married, filing jointly). The subsidy recapture tax begins to phase in for a single taxpayer with a modified adjusted gross income of $125,000 ($250,000 for individuals married, filing jointly).
The Special Election Period: Eligibility begins for Individuals the first available coverage month after the date of enactment (March 1, 2009) and ends 60 days from the date he/she receives notice of the special election. Of note, the Assistance Eligible Individuals would still be required to make payment within 45 days of their election.
* Individuals whose Qualifying Events occurred on or after September 1, 2008 and who have elected COBRA, may elect to reduce their COBRA payment by 65% effective March 1, 2009 for a period not to exceed nine months.
* Individuals who are currently in their election period may elect COBRA; pay the COBRA premium amount in full for the months of coverage prior to March 1, 2009, if any, and then pay the reduced amount up to nine months beginning on March 1, 2009. * Individuals who failed to elect coverage during their original COBRA election period, or elected but subsequently were terminated due to Non-Payment of Premiums, may now elect COBRA coverage effective for months beginning March 1, 2009 or later for the number of months remaining since their original loss of coverage. A maximum of nine months of coverage will be subsidized. The individual may only elect coverage on a prospective basis, resulting in a period of no coverage prior to the election.
Definition of Group Health Plan:
* A group health plan is defined as any medical, dental, vision plan that would be subject to federal COBRA [with the exception of a health care spending account (i.e. health FSA) established in accordance with IRC Section 125 (Cafeteria Plans)].
Group Plan Offerings:
* Employers who offer various group health plan options (i.e., HMO, PPO, Indemnity, etc.) MAY permit [but it is NOT required] the Assistance Eligible Individual to enroll in alternate coverage from that which they held at the time of the Qualifying Event.
* Exceptions to these conditions are:
· The COBRA premium for the alternate coverage cannot exceed the COBRA premium for the coverage in which the Assistance Eligible Individual was enrolled when the original COBRA qualifying event occurred.
· The alternate coverage must be coverage the employer is offering to its active employees at the time the Assistance Eligible Individual elects the different coverage.
Extended Election Period:
* If an employer decides to offer the alternate coverage option to an Assistance Eligible Individual, the employer must provide the Eligible Individual an election notice and allow an election period of not less than 90 days.
Duration of the Subsidy: The subsidy ends on the earlier of:
· The date the Assistance Eligible Individual becomes eligible (not covered) under another group health plan or eligible under Medicare [Title XVIII of the Social Security Act] that would result in termination of COBRA coverage.
· Failure to pay the COBRA premium due on a timely basis.
· Nine months after the first month that the Assistance Eligible Individual received the subsidy
· The end of the maximum COBRA period
Note: The Assistance Eligible Individuals have an obligation to notify the COBRA Administrator/Employer on a timely basis [and in writing] of their eligibility for other group health plan coverage or Medicare. Failure on behalf of the Assistance Eligible Individuals to do so will subject the individual to IRS penalties of 110% of the improperly paid subsidy amount.
Group Health Plan Reimbursement for The Subsidies:
* Upon receipt of the Assistance Eligible Individual's premium, the Employer may reduce payroll taxes in an amount equal to the portion of the reimbursement related to that premium.
* If the employer's request for COBRA subsidy payments exceed the amount of wage withholdings or FICA payroll taxes reported, the Treasury is directed to reimburse the employer directly for the excess amount. Employers may claim the tax credit only for months during which it actually receives the 35% contribution.
* An employer will need to complete and submit a detailed Report which will accompany the request for the Claim Credits. The IRS has determined that those requirements would be:
· A substantiation of the involuntary termination for each employee claim subsidy
· The amount of the payroll tax offset by the reimbursement
· The Tax Identification number for all covered employees
· The amount of the subsidy reimbursed to each covered employee
· The type of coverage associated with the subsidy
* In the event that an Assistance Eligible Individual pays the COBRA premium in full on or after March 1, 2009 and subsequently elects to accept the subsidy, the COBRA Administrator/employer must credit the subsidized portion against future COBRA premiums or refund the subsidized amount.
* The employer subsidy amounts may not be treated as income to the Assistance Eligible Individuals. The subsidy is not counted as additional income tax or FICA withholding with regard to any taxpayer. Further, it also cannot be considered as income for purposes of determining eligibility for any state or federal public aid (e.g. Medicaid entitlement).
* In the event an individual is denied coverage under this new law, the Department of Labor (DOL) will provide a 15 day complaint review process. The DOL guidelines will be processed shortly.