COBRA provides workers and their families who lose health benefits the right to choose to continue group health benefits provided by their group health plan for up to 18 months. Historically, the cost of COBRA continuation coverage is borne 100% by the employee. Tomorrow in Denver, President Obama will sign into law the American Recovery and Reinvestment Bill of 2009, commonly known as the economic stimulus bill. This law will alter employers’ COBRA obligations by providing for subsidized COBRA premiums by employers.
The law will provide for a 65% subsidy of certain employees’ COBRA premiums for nine months. The subsidy will be available to any employee involuntarily terminated (except those severed because of gross misconduct, to whom COBRA does not apply) from employment between September 1, 2008, and December 31, 2009. The employer will pay 65% of the COBRA coverage premium, which would then be applied as a credit against payroll taxes. The employee would remain responsible for the other 35% of the COBRA premiums. Employers will have to amend their COBRA notices to include information about the availability of this subsidy.
Importantly, this subsidy is to be applied retroactively. Employees who were involuntarily terminated on or after September 1, 2008, but before the enactment of the stimulus bill, and who did not previously elect COBRA coverage, must be given an additional 60-day window to elect COBRA and benefit from the subsidy. If an employee elects COBRA after receiving the new notice, coverage would begin on February 17, not on the date of the actual termination.
Companies with 20 or more employees (COBRA’s coverage limit) must heed these changes. COBRA notices need to be amended for the remainder of 2009, and any employee involuntarily severed between September 1, 2008, and February 17, 2009, will have to be re-noticed to advise of the subsidy.