COBRA Changes Affect Employers

  • Do you provide group health, dental or vision insurance or a Health Reimbursement Account to your employees?
  • Do you have at least 20 employees, whether they are on the group health insurance or not?
  • Have you laid off or fired any employees since September 1, 2008?

If you answered these 3 questions “yes”, you are required to act immediately under the American Recovery and Reinvestment Act of 2009 (“ARRA”) to notify your former employees of subsidies available for their COBRA premiums (and those of their dependents). In addition, you as an employer have to advance that subsidy and then recoup it through payroll tax deductions.

If you have a knowledgeable group health insurance agent like my great friend, Julie Hulsey at Neely, Craig & Walton, LLP, in Amarillo (who supplied me with all of the information for this post), you probably have already been contacted about complying with these COBRA subsidy requirements.

If not, here is some very basic information that you need to digest quickly and an action plan for complying immediately (for example, Friday, April 18, 2009, is the deadline to mail notices to your former employees and their dependents).

Any qualified COBRA beneficiary (employee, spouse or dependent child who was covered under the group insurance or any newborns or adoptees that they could add) who, because of an involuntary termination (lay off, firing or employer-instigated early retirement or significant reduction in hours) between September 1, 2008 and December 31, 2009, is qualified to receive COBRA continuation now has to pay only 35% of his/her COBRA premium while the federal government will pay the other 65%, via the employer through a reduction in payroll taxes. The premiums will be subsidized for as long as 9 months or until the employee becomes eligible for new group health coverage or Medicare, whichever comes first.

Employers are required to send out notices (available at the DOL website, click here) of the subsidy to terminated employees (unless you usually use a third party administrator to send out all of your COBRA notices) whether or not the employee already opted to continue their coverage under COBRA. In other words, even if a former employee turned down COBRA the first time, he or she gets a second opportunity to continue his/her coverage, this time at 65% less cost to the employee for the premium.

Julie has created the following plan of action for employers faced with the subsidy issues under ARRA:

  1. Identify ALL employees terminated since 9/1/08.
  2. Go to the DOL website (click here) to obtain the applicable notice letter and adapt it to your business.
  3. Prior to April 18, 2009, mail the letters to ALL terminated employees by “Proof of Mail”, which only costs $1 at the post office.
  4. If a terminated employee or dependent accepts the offer for subsidized COBRA payments, collect the 35% premium for the months from March 1, 2009 to the current date. Then continue to collect the premiums monthly thereafter.
  5. Send the COBRA election forms and the premiums (employee’s 35% plus the company’s 65%) to the insurance carrier.
  6. Apply your payment of 65% of the premium to reduce your quarterly 941 payroll taxes (use the NEW 941 form on lines 12a and 12b. For the new form, click here).
  7. Continue to send the required notices to any employees you terminate from now until the end of the year.

The ARRA is complicated and can easily be mishandled. Therefore, the best idea of all is to contact a well-informed group health insurance agent (if you don’t have one, Julie Hulsey’s number is 376-6301) or an employee benefits attorney.

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