Stimulus package and COBRA for dummies

February 18, 2009 10:11 AM

How will the COBRA subsidy in the stimulus package work?

I just signed up for COBRA. Good timing, too, since the stimulus package includes a 60% subsidy for people like me who were laid off.

Does anyone know how this will work? I've found a lot of information online about the provision, but nothing about implementation. How long will it take? A month? Six months? Will I have to apply to a government agency or will it go through my COBRA provider or my former employer? How will payment work?

These folks seem to think employers will pay and then deduct it from their payroll taxes, but they weren't sure.

FWIW, I haven't made any payments yet, and don't have to pay till the end of March.

posted by lunasol to Work & Money (5 answers total)

Best answer: Here's what one insurer's compliance people sent out today:

To whom does the Act apply?

The Act's COBRA provisions will apply to group health plans, including fully insured and self-funded health plans. Certain small employers (defined as having less than 20 employees on a typical business day), church plans and federal government plans are not subject to COBRA.

The Act has no impact to any dental-only and vision-only clients, as well as those clients who cover health FSAs (HFSAs).

What does the Act do?

The Act allows certain income eligible individuals to apply for premium assistance to offset the cost of COBRA continuation coverage. In order to qualify, the individual must involuntarily lose their employment (for reasons other than gross misconduct) between September 1, 2008 and December 31, 2009. Involuntary reduction in hours would not qualify the individual for the subsidy. In addition, in order to be eligible for the subsidiary, an individual's annual income must be less than $125,000 if single or $250,000 if filing a joint tax return.

Some key highlights of the Act are:

COBRA Premium Subsidy. For any individual that involuntarily loses their employment between September 1, 2008 and December 31, 2009, and otherwise qualifies for COBRA coverage, the individual will only be required to pay 35% of their COBRA premium until the earliest of (i) 9 months after the first day of the first month he/she is eligible for COBRA, (ii) the first day he/she is eligible for coverage under any group health plan or Medicare or (iii) the date following expiration of the COBRA period. The remaining 65% of the COBRA premium will be subsidized by the federal government by treating the remaining balance as a credit against the employer's payroll taxes. Plan Sponsors will be responsible for submitting reports detailing the amount of the credit to which they are entitled, as well as an estimate of any future credit they believe they may be entitled to at a later date.

Special election period. The Act would allow those individuals who involuntarily lost their employment on or after September 1, 2008, but who did not elect COBRA, to subsequently elect COBRA during a 60-day election period. The 60-day period is calculated from the date notification is given to the individual about his/her entitlement to this special election period.

However, the Act does not provide that coverage will be reinstated retroactively to the date of the qualifying event and also does not extend the individual's maximum COBRA coverage. For example, if an individual, who involuntarily lost his/her job on September 1, 2008, was initially eligible for 18 months of coverage and initially did not elect COBRA, but after 6 months has decided to take advantage of this special election period, the individual would only be eligible for the remaining 12 months of COBRA coverage and not the full 18 months.

Any employee who elects coverage under this special election period must be allowed to either elect the same COBRA package they would have had at the time their employment terminated or, subject to employer approval, they may elect a different COBRA package provided that package is offered to active employees and the COBRA premium would not exceed the premium elected at the time of termination.

Pre-existing condition exclusions may not be imposed. The Act provides that, for any person who wishes to take advantage of the above-mentioned special 60-day enrollment period, a group health plan may not impose a pre-existing condition exclusion even if there has been a 63-day or more break in coverage from the date of the qualifying event until the date of enactment of the Act.

Added notification requirements. The Act imposes both notification requirements on the employee and employer as follows:

An individual receiving a subsidy must notify the employer in writing when he/she becomes eligible for other group health plan coverage. An individual who does not notify the employer may face a penalty of up to 110% of premium reduction.

Employers and COBRA Administrators must update their COBRA notices with information regarding the subsidy, as well as provide a notice to any employee who involuntarily lost their job on or after September 1, 2008, and who did not elect COBRA, advising them of the special election period discussed above. Employers have 60 days from February 17, 2009, to notify individuals of the special election period and employees have 60 days more days after receiving the notice to elect coverage. Model Notices are to be issued by the Secretary of Labor within 30 days after enactment of the Act.

Regulations. The Act allows the Secretary of Labor to promulgate regulations or other guidance as needed.

When will the Act go in effect?

The Act will go into effect March 1, 2009.

How does the Act impact me as an employer?

If you administer COBRA on behalf of your health plan, you will have to update your COBRA forms and other plan materials to reflect the above requirements. In addition, it is recommended that you promptly begin to identify those individuals who involuntarily lost employment (other than for gross misconduct) from September 1, 2008 until now, so that you can send the required notices discussed above.

We have formed a workgroup to identify all of the steps that must be taken to bring your plan into compliance with this new requirement, if Meritain Health administers COBRA on behalf of your plan. We will keep you informed of the changes that will be needed and will provide you with updated copies of any forms and materials as they are updated by our company on your behalf.

We understand that this may be time consuming and confusing, and want to assure you that we are fully prepared to assist you and guide you in navigating these recent changes. As stated above, Model Notices are to be issued by the Secretary of Labor within 30 days. When we learn these notices have been issued, we will issue a Compliance Alert notifying you and providing you with a link to this information.

posted by MarkAnd at 10:43 AM on February 18, 2009 [6 favorites]

So, if I'm reading this correctly, if I was laid off and set to receive COBRA starting Jan. 1, but I turned it down (because I was able to get a better priced plan in Massachusetts), I should still be eligible to pick that COBRA coverage up again? (It will save me $200/month!)
posted by Cat Pie Hurts at 1:51 PM on February 18, 2009

Response by poster: Cat Pie, I think that's right. I'm in MA too, and I'm glad this went through because those plans are really not a great deal, IMO.

Also, thanks MarkAnd, that is helpful.
posted by lunasol at 5:01 PM on February 18, 2009

I'm in MA, too! (Well, it's where I work.)

My understanding is that you'll have a new enrollment window for subsidized coverage effective 3/1. I think the above is a little off with respect to who's eligible, too. I was just told the official legislation includes a provision that state-mandated mini-COBRA coverage is also included. That is, small employers in MA (<20 employees) are not technically subject to COBRA but there's a MA state COBRA-like regulation for those employers and they're also included in this legislation.
posted by MarkAnd at 7:43 AM on February 19, 2009

I've heard a lot of rumors out there about the COBRA stimulus plan, but most of it is very hard to filter through. I found one helpful guideline, which apparently purports that the new economic stimulus package will cover as much as 65-70% of health costs after you become unemployed - all subsidized by the government and paid up-front by your past employer.

An article on COBRA vis a vis the Stimulus Package by Tara Barnes seems to be the oldest and most compelling of the articles. In it, she states that most end up paying as much as 84% of their unemployment check on COBRA coverage. It just seems way too out-of-line in my opinion. Especially eerie is the graph in that article. Look at that loss of jobs! I've never seen anything like it.
posted by AliaCamu at 1:51 PM on February 24, 2009 [1 favorite]