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As previously reported, President Barack Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA) on February 17, 2009. For those involuntarily terminated employees who lost health benefits between September 1, 2008 and December 31, 2009, ARRA allowed them to elect to continue their health benefits (via COBRA or NJ Continuation) and pay just 35% of the premium cost up to a maximum period of 9 months. The remaining 65% was then subsidized by the government. Given that unemployment still remained a critical issue going into the end of 2009, President Obama signed the Department of Defense Appropriations Act (DoDAA) on December 19, 2009, which included changes to the COBRA subsidy provision within ARRA. Key items changed under the new law include:
· The subsidy eligibility period is extended by two months. Individuals who are involuntary terminated between September 1, 2008 and February 28, 2010 are eligible for the subsidy (provided they are not eligible for other group health insurance, such as through a spouse, or Medicare).
· The maximum time that an individual may be eligible for a reduced COBRA premium has been extended from 9 months to 15 months.
· Previously, in order to be considered “Assistance Eligible”, an individual had to both be involuntarily terminated and lose health benefits during the eligibility period. Under the new law, an individual only needs to be involuntarily terminated during the eligibility period. The loss of health benefits may occur at a later time, such as in the case that an employer extends health benefits through a severance package.
How Do These Changes Affect an Employer? Notification Responsibilities: Businesses subject to COBRA (20+ employees) are responsible for sending their former employees information about the extended premium reduction within a certain timeframe. For smaller businesses, or those with fewer than 20 employees, their insurance carrier(s) must notify members of these changes. Premium Overpayment and Retroactive Benefits: Before the subsidy extension, there may have been some individuals whose original 9-month premium reduction period expired at the end of November. Of those, some may have continued COBRA, paying 100% of the premium. Others may have let their COBRA benefits lapse. Because of the new law, both of these groups will now get the chance to recommence benefits at the reduced premium rate. In particular, this may present a cash-flow issue to employers who are subject to COBRA (20+ employees). Individuals that paid in full in December and January will either need to be credited or reimbursed the amount of premium that was “overpaid” (i.e. 65% of the premium). Those who want to reactivate their COBRA benefits will pay 35% of the premium for December and January, leaving the employer to pick up the 65% for those months. Keep in mind that if you offer a severance package with health benefits, your liability may not be limited to paying just for the premiums included in that package –you may also be on the hook, up to 15 months, for paying the 65% portion of COBRA premium if that employee subsequently elects the premium assistance after the severance period ends.
What Hasn’t Changed with the New Law? As previously was the case, businesses subject to COBRA (20+ employees) will continue to be 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 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. When paying the premium, the business 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, as part of the premium reduction application, the employer must determine if the employee’s termination was voluntary or involuntary.
Written by Tracy Martin, CEO of Martin Financial Group in Princeton, NJ. MFG, a leading insurance broker and general agent, provides personalized broker and claims support and is a top resource for Business and Commercial Insurance and Financial Services. Individuals seeking more information about the new ARRA regulation may contact them at 609-356-1500 or visit www.immartin.com.
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