PUBLICATIONS

New COBRA Rules Passed As Part Of Stimulus Bill

3/10/2009

On February 17, 2009, President Obama signed the American Recovery & Reinvestment Act of 2009 ("ARRA") into law. Buried within the more than 1,000 pages of legislation are provisions that will directly impact employers. One such section, entitled the "Health Insurance Assistance for the Unemployed Act of 2009" ("the Act"), changes employee rights and employer obligations under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and other health care continuation coverage provisions.

Under the Act, individuals who were involuntarily terminated on or after September 1, 2008 ("assistance eligible individuals") are eligible for a discount on their health care continuation premiums. Specifically, the Act states that assistance eligible individuals must pay only 35% of the health care premium. The employer pays the remaining 65%, and is reimbursed by the federal government by way of a credit toward the employer's payroll taxes. Because the subsidy applies to COBRA coverage provided on or after February 17, employers may be required to issue reimbursements to terminated individuals in some instances. Under some circumstances, employers will be allowed to apply a credit toward future COBRA payments as long as the payment is credited within 180 days. The premium subsidy is "phased out" for higher-income individuals, and is treated entirely as taxable income to individuals with an adjusted gross income of more than $145,000.

Assistance is also extended to those individuals who were terminated on or after September 1, 2008, and declined COBRA continuation coverage through the employer's health plan. The Act provides those individuals a 60-day "Special Election Period," during which time the individual can opt back in to COBRA at the subsidized rate, retroactive to March 1, 2009. While uninsured medical expenses incurred prior to March 1 will not be covered, the underlying medical condition will not be subject to a "pre-existing condition" exclusion.

The Act obligates employers to provide all assistance eligible individuals with notice of the subsidy provision, and with the opportunity to elect coverage during the Special Election Period, if necessary. Such notice must be provided within 60 days of the enactment of the ARRA – April 18, 2009.

The Act's reference to "COBRA continuation coverage" is deceptive, because it includes State programs that provide "comparable continuation coverage." As a result, small employers who are covered by laws such as CalCOBRA may also have compliance obligations under the Act.

The Act makes other important changes to existing COBRA laws. For example, under the new law, an employer may allow its employees to switch to a less-expensive health care plan. Additionally, there is an expedited review process for denials of premium assistance. However, the Act does not extend the overall time period for which COBRA coverage is available to any particular individual, and no one can receive more than 9 months of subsidized COBRA premiums.

This new law requires swift action on the part of an employer. Assistance eligible individuals must be identified; required notices must be drafted and sent; and administrative systems must be adapted to enable the employer to comply with the Act.

Rutan will be hosting a complimentary breakfast presentation on the intricacies of the Act on March 24 and 26. Please contact Michelle Perciavalle at (714) 641-5100 x1392 or mperciavalle@rutan.com for more information, or to RSVP for the presentation – space is limited.