IMPORTANT E-ALERT: The American Recovery and Reinvestment Act Amends COBRA

The American Recovery and Reinvestment Act of 2009 ("ARRA"), which was just signed into law on Tuesday, amended portions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").  Indeed, these amendments provide a temporary government subsidy to employees for their COBRA premiums.  To be eligible for the subsidy, employees must lose or have lost coverage under their employer's plan due to layoff or involuntary termination occurring between September 1, 2008 and December 31, 2009. 

The amendments affect employers because employers are now required to modify, on a temporary basis, their current COBRA election notices and administer the premium subsidies.  The subsidy is 65% of the premium and the employer must pay that amount upfront.  The employer can then seek reimbursement from the federal government through reduced federal payroll tax payments.  The subsidy is generally available for nine months but could end sooner if the maximum continuation coverage period expires or the individual becomes eligible for coverage under another group health plan or under Medicaid or Medicare.

The amendments created a special election opportunity to allow individuals who initially declined coverage to now elect it.  This extended election period begins on February 17 and ends no earlier than sixty days after an extended election notice is provided to the individual.  Employers must contact any former employees who, since September 1, were laid off or terminated and have declined coverage in order to provide these individuals with notice of the subsidy and to inform them of their option to now elect coverage.  If the employee chooses to elect coverage, their coverage will begin with the first period of coverage beginning on or after February 17; however, the date of their layoff or involuntary termination will still be treated as the qualifying event for calculating the maximum COBRA coverage period.

Employers must amend their election notices to include specific information about the subsidy, such as a description of the special election opportunity, a description of the individual's obligation to provide notice when s/he no longer is eligible for coverage and the contact information for the plan administrator or another individual who has information about the subsidy.  The ARRA ordered that the Department of Labor issue model notices within the next 30 days.

If you have any questions about the COBRA amendments, or need assistance in bringing your business into compliance with them, please contact Amy B. Royal at (413) 586-2288 or at aroyal@rkesq.com.