COBRA and the ARRA

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Hopefully no one has had to contend with layoffs – whether it be on the giving or receiving end.

The American Recovery and Reinvestment Act of 2009 (ARRA) changed the health benefit provisions of COBRA. The financial stimulus law signed by President Obama on February 17, 2009 includes significant changes to the COBRA rules.

COBRA is a federal law giving employees and dependents the right to continue health insurance coverage under certain circumstances. The new COBRA subsidy rules require smaller employers to offer a subsidy if state law requires them to provide continuation coverage comparable to federal COBRA.

Under the ARRA, the federal government will subsidize 65% of the COBRA premium actually charged to an “assistance eligible individual” (AEI) for up to nine months. And AEI is a person eligible for COBRA coverage between September 1, 2008 and December 31, 2009 who elects coverage and whose employment was involuntarily terminated during this period. AEIs also include eligible family members who elect COBRA.

The AEI pays 35% of the COBRA premium to the former employer, and the former employer pays 65% of the premium. The former employer is treated as having paid payroll taxes equal to the portion of the premium it pays for each AEI. If the amount exceeds its payroll tax liability, the excess is credited as an overpayment to the next quarter or refunded.

If you have experienced a downsizing, please make sure that there is coordination of this COBRA provision with your payroll provider.

These are tough times for firms of all shapes and sizes. Together we can get through it and hopefully emerge stronger and wiser.

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