Recent Important Changes To Cobra Requirements

The American Recovery and Reinvestment Act of 2009, the so-called economic stimulus package, includes a 65% subsidy on the cost of COBRA premiums for up to 9 months. In other words, persons who qualify for this credit pay only 35% of the regular COBRA premium. The employer receives a 65% tax credit for the remainder of the premium.

For an employee to be eligible for the COBRA subsidy, the following four conditions must exist:

* The employee must have had individual income of less than $125,000 per year, or family income of less than $250,000 per year;
* The employee must have been laid off between September 1, 2008 and December 31, 2009;
* The employee must have been participating in group coverage sponsored by the employer at the time of the layoff; and
* The employer must continue to exist - if the company was liquidated in a Chapter 7 bankruptcy proceeding, then group coverage is not available.



If the employee was laid off on or after September 1, 2008 and did not elect COBRA coverage, the employee will be allowed to become eligible for COBRA coverage again, as long as the former employer continues to exist and offers group coverage.

The 65% subsidy is not retroactive; it only applies from the effective date of the law (February 17, 2009); employees who had elected COBRA coverage prior to February 17, 2009 and had already paid COBRA premiums before the effective date of the Act, will not receive the 65% credit for those payments.

For former employees laid off after September 1 2008, if the time period for those persons to elect COBRA had already expired on February 17, 2009, the employer will be required to provide a new COBRA notice and a new 60-day election period to any former employee now eligible for the subsidy who did not elect COBRA coverage within 60 days of the enactment of the law on February 17 2009.

Employees are not eligible for the COBRA subsidy if any of the following are true:

* They were laid off before September 1, 2008 or after December 31, 2009;
* They were not participating in group coverage through the employer prior to the layoff; or
* The company did not offer health insurance benefits or has gone out of business.



Under the new amendments to COBRA, the 65% credit or cost savings for employees is limited to 9 months. The employer pays the difference between the subsidy and the full premium, and is compensated by means of a tax credit.

Even with the 65% subsidy, the employee will continue to be enrolled in the same employer-provided plan. For employees with preexisting conditions, which would preclude an employee from qualifying for other types of coverage, the employee can remain on COBRA at a reduced rate for 9 months.

Prior to these new amendments to COBRA, employers with fewer than 20 employees were not required by Federal law to offer COBRA coverage. The 20-employee threshold remains unchanged.

Russell J. Thomas, Jr.
Attorney at Law
THOMAS & ASSOCIATES
4121 Westerly Place, Suite 101
Newport Beach, California 92660
Tel: (949) 752-0101
Fax: (949) 257-4756
Email: russ@employersattorneys.com
Web: http://www.employersattorneys.com

J.D., Harvard Law School, 1967

Specializes in Employment Law and Litigation;
Offices in Southern California (Los Angeles and Orange County)

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