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Businesses get new bite from COBRA changes

Posted: April 16, 2009 9:30 p.m.
Updated: April 17, 2009 4:30 a.m.
 
Hidden in the voluminous American Recovery and Reinvestment Act of 2009 — otherwise known as the Stimulus Bill passed by Congress last month — is a provision that may prove to be a dangerous trap for many American businesses.

The Consolidated Omnibus Budget Reconciliation Act, or “COBRA” for short, and its lengthy and confusing regulations, has long been a headache for HR professionals, benefits administrators and business owners.  Recently, Congress added even sharper fangs to an already complex series of laws.

As described the U.S. Department of Labor, “COBRA gives workers who lose their jobs, and thus their health benefits, the right to purchase group health coverage provided by the plan under certain circumstances. If the employer continues to offer a group health plan, the employee and his/her family can retain their group health coverage for up to 18 months by paying group rates. The COBRA premium may be higher than what the individual was paying while employed but generally the cost is lower than that for private, individual health-insurance coverage. The plan administrator must notify affected employees of their right to elect COBRA.

The employee and his/her family each have 60 days to elect the COBRA coverage, otherwise they lose all rights to COBRA benefits.”

Pursuant to the new revisions to the COBRA requirements, eligible employees who are subject to an involuntary separation (e.g. termination, layoff or other reduction in force) between Sept. 1, 2008, and Dec. 31, 2009, and were enrolled in their employer’s health plan at the time they lost their job, will only be required to cover 35 percent of the total cost of their COBRA continuation coverage, for a period of up to nine months from the date of separation.  The remaining 65 percent of the premium must be advanced by the employer.  

While the employer will be able to recover this advance payment through a tax credit, which may be deducted from its quarterly tax payments (see IRS Form 941), it will still be the employer’s job to maintain records of the COBRA notification, the payments made by the employee and the payments advanced by the business.

Those employees who are eligible for other group health coverage such as a spouse’s plan or Medicare are not eligible for the premium reduction.  Further, there does not appear to be any allowance for the premium reduction for employee premiums paid prior to February 17, 2009 — meaning an employee cannot come back and demand reimbursement for 65 percent of the premiums he or she paid from Sept. 1, 2008, through Feb. 17, 2009.

In late February, the IRS published a series of forms that was intended to guide employers on the tax credit. The explanations seem to complicate the system, however, rather than make it more understandable. These IRS clarifications can be found at www.irs.gov.

Additionally, for more information on how the program should be implemented in your business, and to obtain the new notice forms, please visit www.dol.gov/ebsa/cobra.html.

Based upon these new requirements, all qualifying employers should:

n Ensure that the new COBRA Notification poster is posted in a common area in the workplace; www.dol.gov/ebsa/pdf/joblossposter1.pdf.

n On or before April 18, 2009, provide all eligible employees who are/were involuntarily separated from your company between Sept. 1, 2008 and Dec. 31, 2009, the new COBRA Stimulus Flyer; www.dol.gov/ebsa/pdf/cobrastimulusflyer2.pdf.

n If an employee who was eligible for continuing COBRA coverage between Sept. 1, 2008, and Feb. 17, 2009, elected not to take part in the program, the employer must provide another opportunity for those eligible employees to elect the subsidized continuation coverage.

n Consult with competent employment counsel as to the identity of “qualified individuals” in your business to ensure compliance with the new rules.

n Contact your accountant to discuss the proper forms and application to obtain the tax credit for COBRA premiums advanced by your business.

The penalties associated with COBRA non-compliance attach to the new revisions and create a significant disincentive for employers to disregard the regulations.  Now, COBRA’s bite will be even more painful for American business.

Brian E. Koegle is an attorney with Poole & Shaffery, LLP, a full service business, corporate and employment law firm.  He can be reached at (661) 290-2991.  “It’s The Law” appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. www.SCVbar.org.  Nothing contained herein shall be or is intended to be construed as providing legal advice. His column represents his own views and not necessarily those of The Signal.

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