SS+D News and Information

December 14, 2009
Members in Article: Karl R. Ulrich

Changes to COBRA Under the American Recovery and Investment Act

From a recent statement to clients from Karl Ulrich, Shareholder:  As you are now well aware, President Obama signed The American Recovery and Reinvestment Act of 2009 (the "Act") into law on February 17, 2009. The Act made major changes to COBRA which require immediate action by employers.

Under the Act, employees who are involuntarily terminated from employment between September 1, 2008 and December 31, 2009 may pay reduced COBRA premiums for nine months. The federal government will subsidize 65% of the premium. The former employee is responsible for the remaining 35%. The Department of Labor has four model notices which are now available at the DOL’s website. Employers must notify eligible individuals of their rights under the Act.

Which former employees are eligible?

The Act requires each employer to provide notice of the subsidy to the previously described involuntary terminated employees, as well as to employees that: (i) already elected, and are receiving COBRA coverage, and (ii) former employees that are eligible under a special period (including former employees that have not elected COBRA coverage but otherwise qualify for the subsidy). Such former employees must be given notice, and the right to enroll in COBRA coverage, even if the original time period for such election has already expired.

How to use the Department of Labor’s Model Notices.

First, determine those employees (and their spouses and dependents) that were involuntarily terminated on or after September 1, 2008. Second, determine which former employees are entitled to the special COBRA election period due to: (i) COBRA never being elected; or, (ii) their COBRA coverage terminating prior to February 17, 2009.

You will then need to provide the appropriate notice no later than April 18, 2009. Please remember that you will need to offer a second COBRA election period to individuals eligible for the subsidy who previously declined COBRA continuation coverage or lost COBRA continuation coverage due to a failure to pay the premiums.

If these notices are not sent to eligible individuals by April 18, 2009, an excise tax of $100 per eligible individual per day can be levied against you.