Immediate Employer Action Required for
New COBRA Continuation Health Coverage
Requirements in Federal Stimulus Legislation
By: Lesley A. Russo , Jill E. Hall and Lenna R. Chambers

On February 17, 2009, President Obama
signed what he called “the most sweeping economic recovery package in our history.
The newly enacted legislation, known as the American Recovery and Reinvestment Act
of 2009, includes important new COBRA
health care continuation requirements that employers sponsoring group health plans
must immediately address.  The highlights
of the new requirements are outlined below.

Under existing law, COBRA health care continuation requirements impose an
obligation on most employer-sponsored
group health plans to provide the option of continued health care coverage for specified periods of time to an employee or his or her
covered spouse or dependents (called “qualified beneficiaries” for COBRA purposes)
if coverage would be lost due to certain circumstances, such as termination of
employment, divorce, death and disability. COBRA has not imposed a requirement that
the employer pay or otherwise subsidize coverage under its group health plan for coverage elected to be continued by a former employee or qualified beneficiary, but has permitted the premium cost to be passed
on to the former employee or qualified beneficiary.

The Recovery Act’s new COBRA health care continuation requirements make important changes to the COBRA rules
and impose new notification, reporting and administrative requirements on health plans and employers as a result of the changes.  The Recovery Act establishes a new premium subsidy program for certain former employees electing COBRA coverage (called “assistance eligible individuals”).  Under the subsidy program, the federal government will provide a 65% subsidy towards the cost of COBRA coverage for an assistance eligible individual as long as the assistance eligible individual pays 35% of the COBRA premium cost and is within the Act’s income thresholds for eligibility.  The federal government’s 65% subsidy, however, is funded by requiring the plan, employer or insurer to pick up the 65% COBRA premium cost and then obtain “reimbursement” through a payroll tax credit. Special reimbursement provisions also apply if an assistance eligible individual overpays the 35% premium cost during the period
that the special Recovery Act provisions are in effect.  The period during which the 65% COBRA premium subsidy is available generally will be the shorter of 9 months or the end of COBRA coverage under existing rules. The Recovery Act’s new COBRA provisions generally become effective for employer tax years ending after February 17, 2009. Premium subsidies to assistance eligible individuals may be required to begin
for certain individuals as early as the March 2009 premium payment date.

An “assistance eligible individual” under the Act includes
any former employee who is eligible for COBRA continuation coverage due to involuntary termination of employment during
the period from September 1, 2008 through December 31, 2009, and who elected or elects such coverage.  Special election periods are also provided for assistance eligible individuals
who were involuntarily terminated from employment between September 1, 2008 and the enactment of the Act and who did not elect COBRA coverage within the applicable time deadlines.

The new rules are technical and include numerous exceptions and special rules that must be carefully reviewed in conjunction with an employer’s administration of its health care plan.  The Recovery Act also imposes new notification, reporting, disclosure and administrative requirements on health plan sponsors and employers. Employers should take immediate action to ensure compliance with these new COBRA requirements and to identify potentially affected assistance eligible individuals.

For assistance or additional information regarding these new COBRA compliance obligations, please contact a member of the Employee Benefits Group.