COBRA Premium Subsidy Now Reality

The Law
Employers / Plan Sponsors who are subject to state or federal COBRA must provide premium subsidies of no less than 65% of regular COBRA premium to “Assistance Eligible Individuals” beginning March 1, 2009. Employers must provide notice of the subsidy’s availability to all eligible individuals within 60 days of the law’s enactment.

Background
On Friday, February 13, 2009 both houses of Congress approved the economic stimulus package now known as The American Recovery and Reinvestment Act of 2009 (ARRA). ARRA calls for special assistance to most but not all individuals electing COBRA who lose their jobs or lose coverage as a result of a reduction in work hours for any reason (other than gross misconduct) between September 1, 2008 and January 1, 2010.

Discussion

  1. Assistance Eligible Individuals. Assistance Eligible Individuals (Eligible Individuals) are any Qualified Beneficiary who is or becomes eligible for COBRA coverage on or after September 1, 2008 and before January 1, 2010 through involuntary termination of coverage. This includes spouses and dependents of employees covered under the health plan at the time of the Qualifying Event who would also lose coverage as of the Qualifying Event. If the covered employee dies, coverage will remain in place for the remaining QualifiedBeneficiaries.
  2. Individuals not Eligible for Assistance. Although all assistance eligible individuals are eligible to receive the premium subsidy, High Income Individuals who take the subsidy will be subject to increased tax liability for any subsidy taken beyond the new law’s income threshold. A “High Income Individual” is any taxpayer with modified adjusted gross income of $145,000 in the year in which he/she took the subsidy ($290,000 for individuals married, filing jointly). The subsidy recapture tax begins to phase in for a single taxpayer with a modified adjusted gross income of $125,000 ($250,000 for individuals married, filing jointly). To avoid the tax, High Income Individuals must be given a chance to make a permanent election to waive the subsidy and pay the full COBRA premium. Each Qualified Beneficiary (e.g. spouse) who is a High Income Individual must make his/her own election.
  3. The Subsidy Election. The Eligible Individual must elect the subsidy either during the original COBRA election period on or after September 1, 2008 or during the Special Election Period, if the original period has passed.

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