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The COBRA insurance premium subsidy: Are you eligible?
The American Recovery and Reinvestment Act of 2009 contains a provision that gives qualified COBRA participants a 65 percent federal subsidy to pay their COBRA premiums for up to 15 months. You can take advantage of this assistance if you became eligible for COBRA between Sept. 1, 2008, and May 31, 2010. This applies to workers (and their spouses and dependents) who were involuntarily terminated (including those laid off) or had a reduction in work hours that led to loss of health insurance benefits. Know your COBRA rights.
Below is a Q&A provided by the IRS to help clarify the subsidy rules.
1. Now that the legislation has passed, how is this going to be communicated?
Answer: The IRS will continue to provide updated information through its Web site as it becomes available.
2. What individuals are eligible for the COBRA subsidy?
Answer: An assistance-eligible individual can be any COBRA qualified beneficiary associated with the related covered employee, such as a dependent child of an employee, who is covered immediately prior to the qualifying event. The qualifying event for purposes of eligibility for the subsidy is involuntary termination of the covered employee's employment that occurs during the period beginning Sept. 1, 2008, and ending May 31, 2010.
The individual must also be eligible for COBRA coverage, or similar state coverage, during this period.
3. Is this provision for employees who involuntarily lose their jobs or will it apply to all employees even if they leave voluntarily?
Answer: The credit applies only to involuntarily terminated employees and their family members who are qualified beneficiaries.
4. Is the employer required to provide the COBRA subsidy?
Answer: The subsidy requirement applies to group health plans subject to the federal COBRA continuation coverage requirements or to similar requirements under state law. If you are an employer with such a plan and you receive a 35 percent payment from an assistance-eligible individual, you are required to make the remaining 65 percent payment.
5. What if the employer's group health plan is self-insured? Do the subsidy requirements apply?
Answer: Yes, the subsidy requirements apply to all plans subject to the COBRA requirements, including self-insured plans. In that case, the employer must provide the COBRA coverage if the assistance-eligible individual pays 35 percent of the otherwise required premium. The remaining 65 percent is treated as a payment of payroll taxes by the employer maintaining the plan.
6. What other agencies will provide information about the COBRA subsidy?
Answer: Information about the COBRA subsidy will also be available through the Department of Labor and the Department of Health and Human Services, which, along with the IRS, share responsibility for the COBRA requirements.
7. In order to be an assistance-eligible individual, must the individual actually have coverage under the group health plan at the time of the involuntary termination of employment?
Answer: Yes. The individual must have actual group coverage at the time of the qualifying event, i.e., the involuntary termination of employment. The qualifying event must occur between Sept. 1, 2008, and May 31, 2010, and the individual must be eligible for COBRA coverage at any time during that period.
8. Is the COBRA benefit based on the former employee's insurance coverage?
Answer: In general, COBRA coverage is based on the same coverage that the individual had at the time of the qualifying event. However, under the COBRA subsidy provision, an employer may offer an assistance-eligible individual the option of choosing other coverage that is also offered to active employees and that does not have higher premiums than the coverage the individual had at the time of the qualifying event.
9. Does the subsidy apply to medical and dental plans or medical only?
Answer: The subsidy is generally available for COBRA continuation coverage under any group health plan, including medical, dental and vision coverage. However, it does not apply to a flexible spending arrangement (FSA) offered under a cafeteria plan.
10. If an employer changes the insurance offered under its group health plan, can the subsidy apply to an assistance-eligible individual's coverage under the new insurance?
Answer: Yes, as long as the individual's coverage under the new insurance qualifies as COBRA continuation coverage and the individual otherwise continues to be eligible for the subsidy.
11. What is the general process by which an assistance-eligible individual applies for the subsidy?
Answer: A group health plan is required to notify any individual with a qualifying event occurring between Sept. 1, 2008 and May 31, 2010, of the availability of the subsidy. If an assistance eligible individual already has COBRA coverage in effect on Feb. 17, 2009 (date of enactment), the individual should receive a special notice of the availability of the subsidy. The notices will explain how to apply for the subsidy.
12. If an individual's involuntary termination of employment took place on or after Sept. 1, 2008 and before Feb. 17, 2009, and the individual became eligible for COBRA coverage during that period, but the individual doesn't have COBRA coverage in effect on Feb. 17, 2009, can the individual still elect COBRA coverage and get the subsidy?
Answer: Yes, if the individual's right to continuation coverage is provided under federal law. In that case, the individual will be given a new special election period to elect COBRA coverage and to pay reduced premiums as an assistance eligible individual. The special election period applies regardless of whether the individual failed to elect COBRA coverage previously or elected COBRA coverage and later discontinued it. The individual has 60 days after the notice to elect COBRA coverage and apply for the subsidy.
13. What agency is responsible for providing guidance on these notice requirements?
Answer: The Department of Labor (DOL) is responsible for providing guidance on notices that must be provided about the availability of the subsidy and, if applicable, the special COBRA election period. For more information on the COBRA subsidy notice requirements, visit DOL's COBRA page at www.dol.gov/COBRA, which contains model notices and other guidance on these provisions. You can also call 1-866-444-3272, ext. 4 to speak with a benefits advisor from DOL's Employee Benefits Security Administration.
14. How will the COBRA premium subsidy be provided retroactive to September 2008?
Answer: The COBRA premium subsidy is not retroactive. The earliest it can apply is for the first period of coverage beginning on or after Feb. 17, 2009, the date of enactment of the bill. In addition, if an individual elects COBRA coverage under the special COBRA election period, the coverage is effective only for the first period of coverage beginning on or after Feb. 17, 2009. In the case of a health plan that provides coverage on a calendar month basis, the first period of coverage is the month beginning March 1, 2009.
15. Can an assistance-eligible individual reduce his or her COBRA premium to 35% immediately, rather than waiting for the notice from the health plan?
Answer: Yes. The subsidy applies as of an assistance eligible individual's first period of coverage beginning on or after Feb. 17, 2009. For example, it would apply to the premium for the period of coverage beginning March 1, 2009, in the case of coverage provided on a calendar month basis. However, because the COBRA subsidy provision was only recently enacted, systems to implement the premium reduction might not yet be in place. The assistance-eligible individual would therefore be well-advised to contact the group health plan or employer to discuss the premium reduction before sending in the reduced premium.
16. Can an employer just reduce an assistance-eligible individual's premiums to 35 percent, rather than notifying the individual about the subsidy?
Answer: No, because an individual might not be eligible for the subsidy. For example, the individual might be eligible for coverage under another group health plan and therefore not be eligible for the subsidy.
17. Can an employer pay an assistance-eligible individual's 35 percent share of the premium, rather than collecting it from the individual?
Answer: No. The premium subsidy provision does not allow the individual's 35 percent share of the premium to be paid by the employer.
18. If I am an assistance-eligible individual, is there any other way to get the subsidy besides paying reduced premiums? For example, can I take it as a credit when I file my 2009 tax return?
Answer: No, the subsidy is provided to an assistance-eligible individual only in the form of reduced COBRA premiums. That is, the assistance-eligible individual only has to pay 35 percent of the premium in order to receive COBRA coverage. The employer is reimbursed for the remaining 65 percent through a credit on its payroll tax returns.
19. Is an employer-initiated layoff an involuntary termination of employment for purposes of eligibility for the COBRA premium subsidy?
Answer: Yes, an employer-initiated layoff is generally an involuntary termination of employment for purposes of eligibility for COBRA premium subsidy.
20. Are tax-exempt entities subject to this provision?
Answer: Yes, if the tax-exempt entity is required to provide COBRA continuation coverage. Moreover, an employer exempt from Federal income tax is generally subject to federal payroll tax requirements and required to file Form 941. As in the case of taxable employers, a tax-exempt entity can claim credit on Form 941 for the COBRA subsidy it provides.
21. How will the COBRA credit apply in the case of a business acquisition that results in a successor employer?
Answer: There is no "one size fits all" answer because the result depends on the facts and circumstances, including whether the entity that provided the subsidy continues in existence. The fact that an employer is a successor employer for purposes of applying the social security wage base does not mean that it can claim credit for the subsidy provided by the predecessor employer.
22. Does the COBRA premium subsidy provision apply to employers in Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa and the Commonwealth of the Northern Mariana Islands?
Answer: Yes. Employers (or multiemployer plans or insurers, as applicable) in Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa and the Commonwealth of the Northern Mariana Islands that are required to provide COBRA continuation coverage are required to provide the subsidy to assistance eligible individuals and can claim credit on Form 941-PR (for Puerto Rico) or Form 941-SS (for American Samoa, US Virgin Islands, Guam and the Commonwealth of the Northern Mariana Islands) for the amount of subsidy provided.
23. When does the premium reduction first apply to an assistance
Answer: The premium reduction applies as of the first period of coverage beginning on or after Feb. 17, 2009, for which the assistance
24. How long does the premium reduction apply to an assistance eligible individual?
Answer: The premium reduction applies until the earliest of (1) the first date the assistance eligible individual becomes eligible for other group health plan coverage (with certain exceptions) or Medicare coverage, (2) the date that is nine months after the first day of the first month for which the ARRA premium reduction provisions apply to the individual, or (3) the date the individual ceases to be eligible for COBRA continuation coverage.
Source: Internal Revenue Service