HR Talk: ARRA, COBRA and Employers

The American Recovery and Reinvestment Act (ARRA) of 2009: How Does It Affect Employers?

Changes to Insurance Coverage Continuation Rules

You can't read a paper, go on the web or turn on the TV without hearing about the stimulus package President Obama signed into law on Feb. 17, 2009. The package is vast and includes many factors that require action by you as an employer.

Included in the Act was an extension of unemployment benefits, an upcoming change in tax tables (which will result in slightly lower taxes for employees), and an expansion of the health coverage continuation rules generally referred to as COBRA.

There is a lot of conflicting information out there about what is required of you because of this package. The Department of Labor is required by the Act to provide procedural clarification by March 17, 2009. In the meantime, we want you to understand the basics of ARRA and what you should start thinking about now. As updates and action steps are clear, we will provide further guidance.

What does the act do?
Provides financial assistance to unemployed individuals and their families, below an income maximum threshold, to help pay for COBRA or any state-mandated continuation coverage.
Allows an "assistance eligible individual" (AEI) to pay a reduced amount for COBRA/continuation benefits equal to 35% of the amount they would normally have to pay for 9 months.
In most cases, requires the EMPLOYER to pay the remaining 65% and take a tax credit against the payroll tax and federal income taxes paid for and deposited by the employer.
Allows for employees who were involuntarily terminated since September 1, 2008, and did not elect continuation coverage to re-evaluate and elect COBRA/continuation benefits.
Applies to all group insurance plans subject to COBRA or state continuation, except health care flexible spending accounts.

Who is affected?
An "assistance eligible individual" (AEI):
Is someone who elected COBRA/continuation benefits during the original election period or elects benefits during the new special election period provided by ARRA.
Is an employee who involuntarily became unemployed between September 1, 2008 and December 31, 2009.
Can be a covered employee's covered spouse or dependent child who became a qualified beneficiary because of the termination of the employee's employment.
Is not a "high-income individual" with a modified adjusted gross income in excess of $145,000 individually or a married taxpayer filing jointly with a modified adjusted gross income in excess of $290,000.
Does not have access to any other medical coverage, including coverage under a spouse's group plan or Medicare

How must you act, and by when?
The act requires that two notices be sent within 60 days of enactment:
The first notice must be sent to anyone currently enrolled in continuation coverage informing of the subsidy and qualification parameters.
The second notice must be sent to any person eligible because of an involuntary job loss since September 1, 2008 who did not elect continuation coverage or allowed it to lapse due to non-payment.
The individual has 60 days to elect coverage.
For plans using calendar months as the coverage period, the subsidy applies beginning March 1, 2009.
If notices are not sent out in time for subsidy recipients to receive the subsidy, either a refund for overpayment or a credit applied to future premiums must be issued to the individual in the amount of 65% of the required premium.
Still to come:

A model notice provided by the Department of Labor to be used to alert an assistance eligible individual.
A definition of "involuntary termination" - What about constructive discharge, participation in voluntary reductions in force, mutual termination agreements, voluntary retirements, etc.

As the world of being an employer becomes increasingly more complicated, we at ESG look forward to working with you on matters like ARRA. If you have any questions on this information or other human resource challenges you face, please call us at 1-888-810-8187. Otherwise, stay tuned!