COBRA Health Insurance Subsidies for Recently Terminated Employees

Many employers and employees appear to still be unaware of the temporary COBRA premium reduction passed by Congress. Here is some background:

As a part of the stimulus package, which was enacted as the American Recovery and Reinvestment Act of 2009 (ARRA) temporarily reduces the premium for COBRA coverage for eligible individuals. COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) allows certain people to extend employer-provided group health coverage, if they would otherwise lose the coverage due to certain events such as divorce or loss of a job.

Individuals who are eligible for COBRA coverage because of their own or a family member's involuntary termination from employment that occurred from September 1, 2008 through December 31, 2009 and who elect COBRA, may be eligible to pay a reduced premium. Eligible individuals pay only 35% of the full COBRA premiums under their plans for up to 9 months. This premium reduction is generally available for continuation coverage under the Federal COBRA provisions, as well as for group health insurance coverage under state continuation coverage laws.

If you were offered Federal COBRA continuation coverage as a result of an involuntary termination of employment that occurred at any time from September 1, 2008 through February 16, 2009, and you declined to take COBRA at that time, or elected COBRA and later discontinued it, you may have another opportunity to elect COBRA coverage and pay a reduced premium.

 

Here are some FAQ's about the program:

What plans does the premium reduction apply to?


 

The COBRA premium reduction provisions apply to all group health plans sponsored by private-sector employers or employee organizations (unions) subject to the COBRA rules under the Employee Retirement Income Security Act of 1974 (ERISA). They also apply to plans sponsored by State or local governments subject to the continuation provisions under the Public Health Service Act, and plans in the Federal Employee Health Benefits Program (FEHBP). The premium reduction is also available for group health insurance that is required by State law to provide comparable continuation coverage (such as “mini-COBRA”).

How can I tell if I am eligible to receive the COBRA premium reduction?


ARRA makes the premium reduction available for "assistance eligible individuals." An Assistance Eligible Individual is a COBRA qualified beneficiary who meets the following requirements:
Is eligible for COBRA continuation coverage at any time during the period from September 1, 2008 through December 31, 2009; Elects COBRA coverage (when first offered or during the additional election period provided by ARRA); and The COBRA election opportunity relates to an involuntary termination of employment that occurred at some time from September 1, 2008 through December 31, 2009.
However, if you are eligible for other group health coverage (such as through a new employer’s plan or a spouse's plan) or Medicare you are not eligible for the premium reduction.
Moreover, electing the premium reduction disqualifies you for the Health Coverage Tax Credit, which could be more valuable to you than the premium reduction. Additionally, certain high-income individuals may have to repay the amount of the premium reduction through an increase in their income taxes. See FAQ #9 below for more information.
Note: If the employee's termination of employment was for gross misconduct, the employee and any dependents generally would not qualify for COBRA or the premium reduction.

In order to be an Assistance Eligible Individual, must the individual actually have coverage under the group health plan at the time of the involuntary termination of employment?


In general, yes. The individual must have coverage at the time of the involuntary termination of employment. This qualifying event must occur at any time from September 1, 2008 through December 31, 2009 and the individual must be eligible for COBRA coverage at any time during that period. Of course, newborns and children who were adopted or placed for adoption after the qualifying event are also considered qualified beneficiaries and so would have the same rights as someone who had coverage at the time of the qualifying event.

If I am eligible for the premium reduction, how long will it last?


Your premium reduction can last up to 9 months. However, it will end earlier if:

  • You become eligible for Medicare or another group health plan (such as a plan sponsored by a new employer or a spouse’s employer)**, or
  • You reach the end of your maximum COBRA coverage period.

If you continue your COBRA coverage after the premium reduction period, you may have to pay the full amount of the premium. Failure to do so may result in your loss of COBRA coverage. Contact your plan administrator for more information.
**Individuals paying reduced COBRA premiums must notify their plans if they become eligible for coverage under another group health plan or Medicare. Failure to do so can result in a tax penalty.

Who is eligible for a new, second election opportunity for COBRA coverage?


Qualified beneficiaries whose qualifying event was an involuntary termination of employment during the period from September 1, 2008 through February 16, 2009 who did not elect COBRA when it was first offered or who did elect COBRA but are no longer enrolled (for example, those who dropped COBRA coverage because they were unable to continue paying the premium) have a new, second election opportunity. Individuals eligible for the extended COBRA election period must receive a notice informing them of this opportunity. This notice must be provided by April 18, 2009 and individuals have 60 days after the notice is provided to elect COBRA. However, this special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee's involuntary termination). COBRA coverage elected in this special election period begins with the first period of coverage beginning on or after February 17, 2009.

Under ARRA, this special election period opportunity is not required to be provided with respect to State continuation coverage that is provided pursuant to State insurance law. A State can take action, however, to provide an additional election period in its continuation coverage program for individuals involuntarily terminated from September 1, 2008 through February 16, 2009 in order for them to request premium assistance based upon involuntary termination occurring during that period. For more information on rights and responsibilities regarding election periods under State law, contact your State insurance commissioner’s office or CMS.

 


How do I apply for the premium reduction?


If you were covered by an employment-based health plan on the last day of the employee’s employment, the plan should provide you a notice of your eligibility to elect COBRA and to receive the premium reduction. The notice should include any forms necessary for enrollment. You may also want to contact your plan directly to ask about taking advantage of the premium reduction.

Are there income limits for the premium reduction?


If the amount you earn for the year is more than $125,000 (or $250,000 for married couples filing a joint federal income tax return), you may have to repay all or part of the premium reduction through an increase in your income tax liability for the year. If you think that your income may exceed the amounts above, you may wish to consider waiving your right to the premium reduction.

How does the 65% premium subsidy get paid to me?


You will not receive a payment. Assistance Eligible Individuals are responsible for paying only 35% of the COBRA premium for the period of coverage. The remaining 65% of the premium is reimbursed directly to the employer, plan administrator, or insurance company through a payroll tax credit.

Does the 35% I am required to pay include any administrative fees plans are permitted to charge or do I need to pay that fee separately?


If you are an Assistance Eligible Individual, you will only need to pay the amount that is 35% of what you would otherwise pay for your COBRA coverage, which already includes any administration fee.


Does ARRA impose any new notice requirements?


Yes, plans and issuers are required to notify qualified beneficiaries regarding the premium reduction and other information about their rights under ARRA as follows:

  1. A general notice to all qualified beneficiaries, whether they are currently enrolled in COBRA coverage or not, who have a qualifying event during the period from September 1, 2008 through December 31, 2009. This notice may be provided separately or with the COBRA election notice following a COBRA qualifying event.
  2. A notice of the extended COBRA election period to any Assistance Eligible Individual (or any individual who would be an Assistance Eligible Individual if a COBRA continuation coverage election were in effect); who had a qualifying event at any time from September 1, 2008 through February 16, 2009; and who either did not elect COBRA continuation coverage or who elected but subsequently discontinued COBRA. This notice must be provided within 60 days following February 17, 2009.

Unless specifically modified by ARRA, the existing COBRA notice manner and timing requirements continue to apply.  Under the State programs, the issuer of the group health plan must provide the notice to qualified beneficiaries with the information on how to apply for the premium reduction. These notices must be provided within the time required by State law.

What information must the notices include?


The notices must include the following information:

  • The forms necessary for establishing eligibility for the premium reduction;
  • Contact information for the plan administrator or other person maintaining relevant information in connection with the premium reduction;
  • A description of the second election period (if applicable to the individual);
  • A description of the requirement that the Assistance Eligible Individual notify the plan when he/she becomes eligible for coverage under another group health plan or Medicare and the penalty for failing to do so;
  • A description of the right to receive the premium reduction and the conditions for entitlement; and
  • If offered by the employer, a description of the option to enroll in a different coverage option available under the plan.

Note: The Department of Labor has developed model notices that are available.

If an Assistance Eligible Individual pays the full COBRA premium and is later determined to be eligible for the premium reduction, what should the plan do with the overpayment?


The plan (or other person to whom such payment is payable) can apply the overpayment as a credit toward subsequent premium payments as long as it is reasonable to believe that the credit can be used within 180 days of the overpayment. Otherwise, the overpayment must be reimbursed to the individual within 60 days of receipt.

What can I do if my former employer’s group health plan denies my application for the premium reduction?


If the plan determines that you are not eligible for the premium reduction, you can request an expedited review of the denial. The Department of Labor will handle requests related to private sector employer plans subject to ERISA’s COBRA provisions. The Department of Health and Human Services will handle requests for Federal, State, and local governmental employees, as well as requests related to group health insurance coverage provided pursuant to state continuation coverage laws. The Departments are required to make a determination regarding your request within 15 business days after receiving your completed application for review.

Note: Appeals to the Department of Labor must be submitted on the U.S. Department of Labor application form. The form is available at www.dol.gov/COBRA and can be completed online or mailed or faxed as indicated in the instructions. If you believe you have been inappropriately denied eligibility for the premium reduction, you may wish to speak with an Employee Benefits Security Administration Benefits Advisor at 1.866.444.3272 before filing this form.

 

More Information

Guidance and other information is available on the Department of Labor web site at www.dol.gov/COBRA. You can also call 1.866.444.3272 to speak to an Employee Benefits Security Administration Benefits Advisor.