|February 20, 2009|
Schiff Hardin Labor and Employment and
New COBRA Rights and Premium Subsidies
On February 17, 2009, President Obama signed into law the economic stimulus package, otherwise known as the American Recovery and Reinvestment Act of 2009 ("the Act"). The Act makes a significant change to COBRA that will impact many employers and their employees.
Effective for premiums due for COBRA coverage on or after February 17, 2009, an employee covered under a group health plan whose employment was or is involuntarily terminated on or between September 1, 2008, and December 31, 2009, as well as his or her eligible dependents (each, an "eligible individual"), who elects COBRA coverage need pay only 35% of what his or her COBRA premium would have otherwise been for up to nine months. The employer must absorb the remaining 65% of the COBRA premium and, upon filing a claim with the U.S. Department of the Treasury, can receive a credit against its payroll taxes as reimbursement for the 65% subsidy it provides. Eligibility for the nine-month 65% premium subsidy ends when the eligible individual qualifies for Medicare or coverage under another group health plan, or when his or her maximum COBRA continuation coverage period expires. An eligible individual who elected COBRA coverage prior to February 17, 2009 will not be entitled to any reimbursement of premiums he or she previously paid.
New COBRA Elections
Effective immediately, employers are required to change their existing COBRA notices to explain the new rights extended to eligible individuals. The U.S. Department of Labor will produce a model notice by mid-March that employers can use to inform eligible individuals of their rights under the Act including the 65% premium subsidy and other relevant information. In the meantime, please contact your attorney at Schiff Hardin for any guidance you require to revise your existing COBRA notice.
Prior COBRA Elections
An eligible individual who qualified for and elected COBRA coverage before February 17, 2009 must receive a notice by April 18, 2009 of his or her right to receive the 65% subsidy of the COBRA premium. An eligible individual who qualified for COBRA coverage before February 17, 2009, but declined such coverage, must receive a notice on or before April 18, 2009 of his or her new right to elect COBRA and receive the 65% subsidy of the COBRA premium.
An employer may permit an eligible individual to elect alternative coverage under a group health plan the employer maintains that is different than the coverage the eligible individual elected at the time of the involuntary termination of employment. On or before April 18, 2009, the administrator of the group health plan must notify the eligible individual of his or her right to elect the alternative coverage. An eligible individual may want to exercise this choice if another group health plan is less expensive. Certain conditions must be met before this election may be made available to an eligible individual.
Impact on Individual Taxes
An eligible individual does not have to include the 65% premium subsidy in his or her gross income when computing his or her federal taxes. However, this tax benefit is generally unavailable to an eligible individual with an annual adjusted gross income of $125,000 or more ($250,000 or more in the case of a joint tax return).
More details of the new COBRA program will no doubt be forthcoming, and we will continue to provide updates as they become available. Please call us if we can be of assistance as you implement these new COBRA requirements.
ABOUT SCHIFF HARDIN LLP
Schiff Hardin's Labor and Employment practice group represents employers and management in all aspects of the employment relationship, including discrimination claims under Title VII, the American with Disabilities Act, the Age Discrimination in Employment Act, and the Fair Labor Standards Act. The firm's employment attorneys have litigated and tried numerous cases in federal and state courts around the country. Schiff Hardin offers clients comprehensive payroll practices and policy reviews, as well as advice, counseling and training on equal pay issues.
Schiff Hardin's Employee Benefits and Executive Compensation practice group works with clients to determine which retirement and health/welfare benefits plans best suit their needs, and assists in the design and implementation of all types of stock-based plans, deferred compensation and employment arrangements. Our counseling extends to analyzing benefit formulas, investment alternatives and procedures, and issues of securities law and fiduciary concerns.
For more information, please feel free to contact us.
"Legislation Expanding The Limitations Period For Equal Pay Claims Will Become Law," Labor and Employment Update (January 26, 2009)