SUBSIDIZED COBRA HEALTH COVERAGE
The economic stimulus bill signed into law on February 17 by President Obarna provides that the federal government will pay 65% of the cost of COBRA coverage for up to nine months for employees who lose their group health coverage between September 1, 2008 and December 3 1, 2009 because of "involuntary termination."
How COBRA works:
Since 1986 the federal COBRA law has required employers of at least 20 employees (California law requires employers of 2 employees or more) to allow employees who terminate employment* to continue their health coverage by paying 102% of the cost. However, this right was often perceived as cold comfort because an employee no longer earning a paycheck could ill afford to pay for the cost of their health plan.
The federal subsidy:
The stimulus bill provicies that as of March 2009 the federal government will pay 65% of the COBRA premium for anyone who loses their employment-based health coverage because of an "involuntary termination" of their employmentc* for up to nine months (in a termination the COBRA period ordinarily lasts up to 18 months: employees who continue COBRA coverage after the subsidy period has ended will have to pay the full cost). Thus, the employee will have to pay only 35% of the COBRA premium The subsidy is funded through an offset in the employer's payroll taxes. The same subsidy applies whether the coverage is through an employer or a labor-management trust.
Application of the subsidy to employees "involuntarily terminated" before March 1, 2009:
Once an employee is laid off or otherwise involuntarily terminated, he and his dependents have 60 days from the date they receive notice of their COBRA rights within which to elect continuation coverage. Ordinarily, once this election window closes, there are no further election rights. However, the stimulus bill allows employees who were "involuntarily terminated" on or after September 1,2008 a second chance to elect COBRA coverage. If your member lost eligibility because of an involuntary termination on or after September 1, 2008 and did not elect COBRA, the stimulus bill requires hisher former health plan to notify himlher of a new opportunity to elect COBRA prospectivelv for whatever is left of the initial (usually 18 month) COBRA period (with up to nine of those months at the federally subsidized rate).
If your member lost eligibility because of an involuntary termination on or after September 1, 2008 and did elect COBRA, the stimulus bill requires hisfher former health plan to provide notice of entitlement of up to nine months of the federal subsidy effective March 1. This opportunity for a second chance to elect COBRA (or to apply for the federally subsidized COBRA rate for those who did elect COBRA) lasts for up to 60 days after receipt of the health plan's notice. For anyone who did elect and pay for COBRA between September 2008 and February 2009, the federally subsidized COBRA rate is not retroactive: there is no federal subsidy for COBRA premiums paid from September 2008 through February 2009.
How will the subsidy work? The notice concerning the subsidy must be sent no later than April 18, 2009 to those involuntarily terminated from September 1, 2008 to the date of the notice. Anyone terminated from now through the end of 2009 is eligible for the subsidy. Because the subsidy is so new and the regulatory details will be spelled out in the coming weeks, few plans are likely to be prepared by March 1, but we recommend that you advise members as follows:
If you have been terminated and did not elect COBRA when you first had the chance, and are not eligible for coverage through a spouse or new employment, consider electing COBRA when you receive the second - stimulus bill - required notice. Electing COB= does not obligate you to pay for it immediately. You have up to 60 days after receipt of the notice to decide whether to elect COBRA coverage at the subsidized rate, and 45 additional days after your election to pay for
it. However, you will not be covered unless you submit payment retroactive to your new eligibility date. If you want your subsidized coverage to start in March, but have not received your notice by the end of February, call your health plan and ask for the notice and the rates. If they do not have a notice yet, ask how to elect COBRA and for your rate options (single, family, "core" coverage, or "core plus"***).
Call us with any questions concerning this memo.
* As well as the dependents of employees upon death, divorce or - for children - upon reaching the plan's age m aximum.
** However, federal COBRA allows plans to deny COBRA rights to employees fired for "gross misconduct" and that exclusion appears to survive in the stimulus bill.
*** For plans which offer medical, prescription drug, dental and vision coverage, COBRA provides for a choice between "core" benefits (medical and drug) and "core plus" (medical, drug, dental and vision).