COBRA Premium Assistance

The American Recovery and Reinvestment Act of 2009 (a.k.a. The Economic Stimulus Bill) hereafter referred to as “ARRA” will have a significant impact on COBRA. The ARRA makes substantial, but temporary, changes to the rules governing the continuation of health coverage under COBRA. ISMA is working quickly to incorporate these changes into its processing, notification and billing procedures.

The ARRA aims to make health insurance coverage more affordable for employees who lose their jobs by lowering the cost of COBRA coverage for many individuals. Any qualifying individual whose employment is involuntarily terminated between September 1, 2008, and March 31, 2010, and who is eligible for continuation coverage under COBRA because of the termination will be able to continue health coverage at only 35 percent of the ordinary COBRA premium for up to fifteen months. Employers will subsidize the remaining 65 percent, but have the right to recover the subsidy amount from the federal government through a credit on their payroll tax deposits.

Discount Period The discount period begins March 1, 2009 and continues until the earlier of: 1) fifteen months after the discount period begins, 2) the date COBRA eligibility ends, or 3) the date an individual becomes eligible for coverage under Medicare or another group health plan (other than a plan that offers certain types of limited benefits, such as a dental plan or health flexible spending account). The ARRA applies penalties against individuals who fail to provide appropriate notice when they become eligible for other coverage. The ARRA does not extend the maximum period of COBRA coverage beyond its ordinary expiration date.

Second Chance to Elect Those who are eligible for the discount but who did not previously elect COBRA coverage must be afforded a period of at least 60 days starting March 1, 2009 to elect continuation coverage. The coverage will be effective as of March 1. The maximum period for coverage will be measured from when it would have begun if COBRA had been elected when initially offered.

Notice Requirements ISMA will modify or supplement the COBRA notices it provides when a qualifying event occurs. The notice will include specified information regarding the opportunity for a premium discount. ISMA will also send notices to those who have already elected COBRA and those who are eligible for the discount but have not elected COBRA, of their rights under the ARRA.

Tax Consequences to Assistance Eligible Individuals The subsidy is not taxable gross income to an assistance eligible individual with modified adjusted gross income less than or equal to $125,000 ($250,000 in the case of a joint return.) For an assistance eligible individual with modified adjusted gross income exceeding $145,000 ($290,000 in the case of a joint return) the COBRA subsidy must be repaid to the government by the individual. For an assistance eligible individual with modified adjusted income between $125,000 and $145,000 (or between $250,000 and $290,000 in the case of a joint return), the amount of the premium subsidy for the year that must be repaid is reduced proportionately.

Billing and Collection of Premiums Premiums for an assistance eligible individual who elects COBRA will be billed to the former employer by ISMA. The former employer will remit the full premium to ISMA, collecting 35% of the premium from the former employee and subsidizing the other 65%.

Claiming the Subsidy Employers are directed to reduce the amount of employment tax deposits by an amount equal to the premium subsidy, and these offsets, or credts, are to be reported on Form 941, Employer's Quarterly Federal Tax Return.

 

This communication is brought to you by Indiana State Medical Association. The information contained herein is for informational purposes only and is not intended as legal advice, nor is it intended to advise you of your obligations under the American Recovery and Reinvestment Act of 2009. Please direct questions to ISMA Insurance Department, (800)257-4762.