March 2009

The Federal Stimulus Package Makes Changes to COBRA

As a result of the American Recovery and Reinvestment Act of 2009 signed into law last month, employees who are involuntarily terminated from employment between September 1, 2008 and December 31, 2009, with an annual income less than $125,000 (single) or $250,000 (joint) are entitled up to a 9 month premium subsidy for their COBRA coverage. In effect, a qualifying former employee will only be required to pay 35% of their monthly COBRA premium. The remaining 65% is to be subsidized by the insurer or employer. To offset the cost to insurers and employers, the government is offering a payroll tax credit equal to the 65% of the premium amount.

Individuals who were involuntarily terminated on or after Sept. 1, 2008, and declined COBRA coverage will also be given a new opportunity to enroll. The coverage date will be retroactive to the date the Act was signed into law.

The new law creates a host of potential new obligations for employers. The primarily obligation will be to maintain supporting documentation for the claimed credit. For instance, an employer must maintain documentation pertaining to an employee’s election of the COBRA continuation and payment of their 35% premium share. A full list of obligations can be found on the Department of Labor website.

Employers should review the new law and its obligations to develop a plan for compliance. Should you have questions or need assistance feel free to call the SBH Employment Law Team. We are here to help.