The American Recovery and Reinvestment Tax Act of 2009 (the "Act") was signed into law on February 17, 2009. This new law dramatically affects virtually all employers with 20 or more employees whose group health plans are subject to COBRA.
Before the newly enacted changes to COBRA, employees electing COBRA coverage had to pay up to 102 percent of the cost of the premiums for continued coverage and employers had the option of paying none of the premium. The new law requires employers to subsidize the cost of COBRA coverage for employees who are involuntarily terminated (for reasons other than gross misconduct) between September 1, 2008 and December 31, 2009 (“Subsidy Eligible Former Employee”) who elect to continue their health coverage by paying 65% of the COBRA premium. Employer reimbursement may be made by the employer taking a credit against its liability to deposit payroll taxes and federal income taxes withheld from the employees’ compensation.
Employers who provide continuation coverage to certain individuals who are not legally entitled to COBRA (such as domestic partners), will need to decide whether to offer such individuals the subsidy since the value of the subsidy will be taxable income to that individual and the employer will not get the credit for the subsidy that is otherwise available.

The employee must pay 35 percent of the COBRA before the employer can request reimbursement of the other 65 percent. Employers who, as a regular course of business, currently pay a portion of the COBRA premium for a former employee is only entitled to a reimbursement of the difference between the portion of the premium the employer normally pays and the 65 percent subsidy
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The subsidy became effective March 1, 2009 and applies to employees who were involuntarily terminated through December 31, 2009. For ease of administration, employers should develop alternative COBRA election notices and other communications that reflect the subsidy. These notices and communications
must be provided to all Subsidy Eligible Former Employees on or before April 18, 2009.

the option to enroll in different coverage if available,
forms needed for establishing eligibility for the subsidy,
duration of COBRA, and

information regarding the individuals' obligation to notify the plan upon becoming eligible for another group health plan or Medicare and the penalty for failing to do so.
Ability to waive subsidy if adjusted gross income is at least $125,000 single ($250,000 for joint filers.)

Subsidy Eligible Former Employee who had not yet elected COBRA will then have 60 more days after receiving the notification to elect coverage. COBRA coverage elected during the special election period will not apply to coverage periods before March 1, 2009. However, any resulting gap in coverage will be disregarded for purposes of determining the 63 day period which would affect one's creditable coverage subjecting him/her to pre-existing condition exclusions.

The normal 18-month continuation coverage period will not be extended and will still be measured from the individual’s loss of coverage as a result of his/her involuntary termination of employment and will terminate at the same point it would have if the former employees had elected COBRA when it was first made available. However, the 18-month continuation period may be extended for employees who have a non-forfeitable right to receive pension benefits directly from the PBGC; or Trade Adjustment Assistance-eligible Individual.

If available, employees may elect coverage different than that in effect at the time of termination; however, the premium must not exceed the premium for the coverage enrolled in at the time of termination, the different coverage must also be offered to active employees, and the different coverage must not be: (a) only dental, vision, counseling or referral services; (b) a health FSA; or (c) coverage providing treatments in an on-site medical facility of the employer providing primarily first-aid and prevention services.
The subsidy terminates at the earlier of

(a) 9 months;
(b) eligibility for other employer health coverage;
(c) Medicare eligibility;
(d) the end of the maximum COBRA coverage period required by law; or

(e) for those electing COBRA during the special election period, the end of the COBRA period starting from the initial time period when the employee could have elected COBRA.

If notices haven’t gone out prior to March 1st, employers must develop a procedure for refunding the subsidy or crediting it against future premiums. Premium credits must be used within 180 days or refunds must be made within 60 days.

As part of the administration of this program, employers must maintain supporting documentation for the credit claimed. This includes:

Information on the receipt, including dates and amounts, of the eligible individual’s 35percent share of the premium;

In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA;

In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the eligible individuals;

Attestation of involuntary termination, including the date of the involuntary termination for each covered employee whose involuntary termination is the basis for eligibility for the subsidy;

Proof of each eligible individual’s eligibility for COBRA coverage at any time during the period from September 1, 2008, to December 31, 2009, and election of COBRA coverage;

A record of the Social Security numbers of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for 1 individual or 2 or more individuals;

Please contact Michael F. Yates & Company Inc. for additional details. CONTACT MFYCO