BLOG

ARRA COBRA Subsidy – DOL Model Forms Released

03/26/2009

This is an important announcement that Moye White is sending to its clients and friends. It contains information regarding recent changes in law, brought about by the freshly-enacted "stimulus package", that affect all employers.

The American Recovery and Reinvestment Act of 2009 (“ARRA”), effective February 17, 2009, requires employers, large and small, who sponsor group health plans to subsidize COBRA premiums for certain “assistance eligible individuals” that suffer a job loss from September 1, 2008 through December 31, 2009.

What Must Employers Do?

No later than Saturday, April 18, 2009, employers must notify ALL qualified beneficiaries (not just covered employees) of the subsidy, regardless of the qualifying event. The Department of Labor just released the following model notice forms yesterday:

  • General Notice – Full Version (use as general COBRA election notice with information on premium reduction and other rights and obligations under ARRA);
  • General Notice – Abbreviated Version (use with individuals who have already received a general COBRA election notice and have elected COBRA coverage after September 1, 2008);
  • Alternative Notice (use with small plans of < 20 employees and modify as necessary to comply with the applicable state continuation of coverage law);
  • Notice in Connection with Extended Election Periods (use with individuals who had a qualifying event from September 1, 2008 through February 16, 2009, and either did not elect COBRA coverage or elected it but subsequently discontinued it).

All model notices can be downloaded from http://www.dol.gov/ebsa/COBRAmodelnotice.html.

Who Is Eligible For the Subsidy?

ARRA states that “assistance eligible individuals” are eligible for the subsidy. An “assistance eligible individual” is a qualified beneficiary that is eligible for continuation coverage from September 1, 2008 through December 31, 2009, elects coverage, and has a qualifying event consisting of the “involuntary termination” of the covered employee’s employment. Individuals who are terminated for “gross misconduct” are excluded. The subsidy is also not available to those who have an AGI greater than $145,000 (or $290,000 if filing jointly), and is reduced for those with an AGI between $125,000 and $145,000 (or $250,000 and $290,000 if filing jointly).

What Is the Subsidy?

The subsidy requires employers to pay 65% of the premium for qualified beneficiaries (involuntarily terminated employee plus his/her dependents if elected prior to qualifying event), with the remaining 35% paid by the eligible individual, for up to 9 months. Employers may recoup payments through a new line item reduction on future quarterly payroll taxes (lines 12a and 12b on IRS Form 941). An updated version of Form 941 can be downloaded from http://www.irs.gov/newsroom/article/0,,id=204505,00.html.

Does the Subsidy Apply to Small Employers (<20 Employees)?

In states like Colorado, there are state continuation of coverage laws similar to COBRA (“mini-COBRA” states). Pursuant to ARRA, the COBRA premium reduction applies to small employers in these mini-COBRA states. However, no special election period opportunity is currently required in Colorado for employers with < 20 employees.

For more information on the ARRA COBRA subsidy, contact: Jennifer Gokenbach, Lorni Sharrow or Ted White, Chair, Transaction Section at (303) 292-2900.

If you prefer not to receive any unsolicited e-mails regarding Moye White information, please contact us at info@moyewhite.com.

Moye White LLP has prepared this bulletin to provide general information; however this bulletin does not provide legal advice and does not create an attorney-client relationship between the reader and Moye White. No legal or business decision should be based solely on the content of this bulletin.

ABOUT THE AUTHOR

Lorni Sharrow, LL.M. (Tax)

Attorney

Edward D. (Ted) White

Attorney