Letter to the Editor: Stimulus package triggers COBRA changes

Dear Editor,

Among the items included in the recent economic stimulus package is a temporary subsidy of COBRA premiums for involuntarily terminated employees.

The stimulus package includes a subsidy for employees involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009. The subsidy will cover 65 percent of the monthly COBRA premium for up to nine months and includes similar provisions for state mandated continuation plans. Although this premium subsidy is limited to a period of nine months, nothing in the act shortens the usual period of COBRA coverage.

Employees who have lost coverage due to voluntary termination or reduction in hours won't be eligible for the subsidy. The subsidy applies to the coverage employees are eligible to elect under their COBRA health benefits.

There are income restrictions on receiving the subsidy. Individuals with adjusted gross income of great than $125,000, or $250,000 if married and filing a joint return, will not be eligible for the subsidy. The federal subsidy will be funded through a credit on the employers' federal employment tax payment. If the credit isn't sufficient in covering the costs, then the employer is eligible for a direct reimbursement from the federal government. This will be handled the same as overpayments of employment taxes.

With the March 1 effective date, COBRA notices will need to incorporate these changes. There are provisions in the bill to handle employers who can't meet the March 1 effective date.

Also, please note, employees who didn't originally elect COBRA will be eligible for this benefit with special provisions. Look for the model draft notices by mid-March.

This is a brief outline of some of the key features regarding the changes to COBRA in the economic stimulus package and should be reviewed in more detail with a benefits adviser and/or an attorney. And, as time passes, there will be more clarifications issued and posted, and these will be made available to employers through several sources.-Daniel G. Ruggeri, Employee Benefit Design LLC