Tuesday, April 14, 2009
COBRA subsidy requires action by April 18
|There has been endless debate over what change the new administration might bring and how that change might affect employers. Through the American Recovery and Reinvestment Act, or ARRA, signed into law on February 17, employers’ COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) obligations have already changed, and immediate action is required.
COBRA has always allowed people to continue their employer-sponsored health coverage after the termination of their employment. But this came at a cost – sometimes a prohibitively high cost – to the individual. Under the ARRA, an individual who was “involuntarily terminated” and eligible for COBRA anytime between Sept. 1, 2008, and Dec. 31, 2009, now has to pay only 35 percent of that cost. The entity to which the COBRA payments are made (typically the employer) can claim a credit against its payroll taxes for the remaining 65 percent. This subsidy will continue for a maximum of nine months.
Employers should immediately modify their COBRA notices and send them to individuals who became eligible for COBRA on or after September 1, 2008. This also applies to those individuals who previously declined COBRA. Therefore, employers should audit all employee terminations from Sept. 1, 2008, forward to determine whether a new COBRA notice should be sent. Model notices can be found at the Department of Labor’s Web site. The notices must be mailed by April 18.
Employers also should be prepared to adjust their payroll practices in order to recover the 65 percent subsidy. The IRS has issued a revised version of Form 941 (the quarterly employment tax return) for employers to use in claiming the credit.
New guidance from the Department of Labor is issued almost daily on this subject, and its Web site is a great resource for employers.