Eligible individual will be required to pay 35% of the COBRA premium due in a timely basis under the same rules that normally apply to COBRA qualified beneficiaries. The Federal Government will provide premium assistance of 65% of the COBRA premium due. The premium assistance is calculated based on the full COBRA premium including the 2% COBRA administrative fee

The premium assistance is available to individuals covered by most State Continuation Rules as well as Federal COBRA.

The premium assistance lasts for up to nine (9) months of coverage.

The premium assistance would end as soon as an individual is eligible for other group coverage, or their eligibility for COBRA ends (such as for failure to pay premium, or reaching the end of their COBRA eligibility).

The premium assistance does not apply to Section 125 Health Flexible Spending Accounts, but is available for all other plans that are subject to COBRA (HRA, Dental, Vision, Rx, etc.).

The premium assistance is available to individuals called Assistance Eligible Individuals (AEIs). AEIs must have lost coverage due to the employee's involuntarily termination between September 1, 2008 and December 31, 2009 and must be eligible for COBRA or State continuation.

The premium assistance extends to family members eligible for COBRA who have lost coverage due to the employee’s involuntary termination.

The premium assistance does not apply to other COBRA events including divorce, reduction in hours, loss of dependent eligibility and Medicare entitlement.

The premium assistance begins to phase out for individuals with adjusted gross incomes (AGI) over $125,000 ($250,000 for those filing jointly). No premium assistance is available to anyone with an AGI over $145,000 ($290,000 for joint filers). Individuals who would otherwise be eligible for the premium assistance, but believe they will exceed the income limits, must be given the opportunity to opt-out. Employers must clearly communicate these rules to eligible individuals in COBRA notices. Individuals must then report subsidies received when they file their Federal Income Tax, and income based adjustments would be made to the individual’s tax liability at that time.

A second special election period must be offered to AEIs who originally declined COBRA coverage and to AEIs who elected and subsequently terminated COBRA coverage.

If an eligible individual with a gap in coverage elects, coverage would be effective and premiums due prospectively from the first period of coverage after February 17, 2009 (For employers whose coverage is effective on a calendar month basis this will be March 1, 2009). Coverage for those not already on COBRA would not be made retroactive to the original COBRA event date

The special election period begins February 17, 2009 (the date of enactment) and ends 60 days after the date the employer provides the required special notice (see the next section for details on notice requirements). This provision makes the quick delivery of notices very important since any coverage an individual elects will be effective retroactively to March 1st, 2009.

The Department of Labor has released model notices to assist employers in meeting these requirements at www.dol.gov/COBRA

No new pre-existing limitation may be imposed on individuals who elect even it there has been a break in coverage of more than 63 days.

If an individual has already elected COBRA, the premium assistance would apply only on a prospective basis from March 1, 2009 coverage forward.

Electing the premium assistance would not change the original COBRA event date or the maximum period of coverage.

Individuals receiving the premium assistance are required to notify the employer when they become eligible for other insurance. If they fail to do so they are subject to a penalty of 110% of the amount of the premium assistance.

An employer may, but is not required to, allow an individual to change their health insurance coverage to a new option with the same or lower premiums. This option must be a plan that is also available to non-COBRA employees.

Employers will be required to send a special notice no later than April 18, 2009. The notice must be sent to all AEIs (individuals affected by an employee’s involuntarily termination since September 1, 2008) whether they have elected to continue COBRA or not.

Employers must also send an updated notice to ALL COBRA QBs who have had any type of COBRA event since 2/17/09.

The same notice must also be sent to any QB with any event since 9/1/08 who has not already received an election notice.

A notice must also be sent to any QB currently on COBRA notifying them of their possible eligibility for the subsidy.

The employer will recover the 65% of the premium not paid by the individual through a credit applied toward the employer’s payroll taxes. If this credit is not enough to cover the cost borne by the employer, the Federal Government will directly reimburse the employer for the difference.

The IRS has released a new Form 941, that employers will use to report the credit to the IRS, and instructions for the documentation necessary to support the credit. Details can be found on the IRS website at http://www.irs.gov/newsroom/article/0,,id=204505,00.html. 

If the insurer is collecting premiums directly from the COBRA QB, there will be a mechanism developed for the insurer to be directly reimbursed by the Federal Government for the premium assistance amount.

Earlier versions of the bill included provisions that would have extended the COBRA continuation period for individuals who are age 55 or over or individuals who have worked for the employer at least 10 years. These provisions were not included in the final legislation.

Employers should begin by figuring out who qualifies as an Assistance Eligible Individual. Any COBRA QB affected by an employee’s involuntary termination since September 1, 2008 will need to receive this special notice by April 18th, 2009.

The HR/payroll department will need to create the tracking mechanism necessary to report premium assistance details to the IRS.

Required notices must be sent as soon as possible