Insurance Q&A: How does the American Recovery and Reinvestment Act Impact Cobra & Small Business? | Q&A: How does the American Recovery and Reinvestment Act Impact Cobra & Small Business? |
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ARRA – The New Insurance Buzzword As part of the economic stimulus plan, President Barack Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA) on February 17, 2009. Involuntarily terminated employees who lose health benefits between September 1, 2008 and December 31, 2009 can elect to continue their health benefits (via COBRA or NJ Continuation) and pay just 35% of the premium cost with the other 65% being subsidized by the government for a maximum period of 9 months. How does ARRA affect an employer?Businesses subject to COBRA (20+ employees) are responsible for paying upfront the 65% portion of the former employee’s premium. The government reimburses the business through an equal offset in payroll taxes. Businesses must reimburse or credit the 65% to any qualified former employee who has paid the full premium during the reduction period. Businesses subject to NJ Continuation (less than 20 employees) do not have to front the 65% premium. Instead, the health insurance Carrier pays the 65%, and then receives the tax credit. Who can get the subsidy?The subsidy applies to individuals (and their qualified dependents) who lose health coverage due to an involuntary termination of employment between September 1, 2008 to December 31, 2009. This includes any reduction in work to zero hours, but does not include termination due to gross misconduct. The subsidy is also phased out for higher-income earners. What are the employer’s responsibilities under ARRA?Businesses subject to COBRA laws must issue notification of the premium subsidy to former employees who lose health coverage between September 1, 2008 and December 31, 2009, whether or not they are subsidy-eligible. The business then collects the monthly 35% premium from the terminated employee and, with the 65% contribution, sends the combination as part of its regular group premium payments. Employers can also offer the option to enroll in another medical-based plan offered to active employees as long as the premium is the same or lower than what the former employee had at the time that benefits were lost. Finally, the employer must determine if the employee’s termination was voluntary or involuntary. |
