COBRA – Federal Premium Assistance Information
On Feb. 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009 (amended on Dec. 19, 2009 by the Department of Defense Appropriations Act of 2010), which includes a COBRA health insurance premium subsidy for eligible individuals. Under the law, the federal government will subsidize 65 percent of the cost of COBRA premiums and other state group continuation for up to 15 months for workers who lose their jobs.
- The law provides a 65 percent COBRA premium subsidy for workers who are involuntarily terminated between Sept. 1, 2008 and Feb. 28, 2010.
- The subsidy is for up to 15 months.
- Eligible workers pay 35 percent of the COBRA premium.
- The employer or health insurer will pay the 65 percent subsidy amount and will be reimbursed by the federal government through a payroll tax credit.
- Workers who previously declined COBRA coverage may have a second opportunity to elect it now that a subsidy is available.
Q1: What are group coverage continuation laws?
Group coverage continuation laws require employers to offer employees who lose group coverage the opportunity to continue their employer-based health insurance. COBRA is the federal law that requires employers with 20+ employees to provide group continuation coverage. State law requires insured health plans for employers with less than 20 employees to provide similar group continuation coverage.
Q2: When an employee loses group coverage and elects continuation, who pays the premium?
The employee who lost group coverage, not the employer, must normally pay the entire health insurance premium. But during the eligibility period for this subside, the employee only pays 35 percent.
Q3: How can I tell if I am eligible to receive COBRA premium reduction?
To qualify for the COBRA premium reduction, you must be involuntary terminated from employment at any time from Sept. 1, 2008 through Feb. 28, 2010; and Elect COBRA coverage (when first offered or during the additional election period).
If you are eligible for other group health coverage (such as through a spouse’s plan or a new employer’s plan) or for Medicare you are not eligible for the premium reduction. The amount of the premium reduction is recaptured for certain high income individuals. If the amount you earn for the year is at least $125,000 (or $250,000 for married couples filing a joint Federal income tax return), all or part of the amount of the premium reduction may be recaptured by an increase in income tax liability for the year. If you think that your income may exceed the amounts above, consult your tax preparer or contact the IRS.
Q4: How do individuals sign up for the subsidy?
Employers are required to send forms to former employees so that former employees can elect to continue their group coverage and receive the subsidy. Former employees will have 60 days after receiving the forms to enroll. Further details about enrollment will be provided by the federal Department of Labor. For the most up-to-date information, contact the Department of Labor at 1-866-444-3272 or visit the agency’s Web site.
Q5: Does the new law, including the subsidy, apply to group continuation coverage other than COBRA?
The new law, including the subsidy, applies to both federal COBRA group continuation coverage and state group continuation coverage. In Missouri, this is known as “mini-COBRA,” and it applies to small plans with fewer than 20 employees.
Q6: When will eligible individuals first receive the subsidy?
The subsidy will be applied to premiums for the first period of coverage beginning on or after Feb. 17, 2009. The subsidy is prospective (i.e., the new law does not subsidize group continuation coverage prior to the first period of coverage on or after Feb. 17, 2009).
Q8: How will the subsidy be applied to group continuation coverage?
Former employees who qualify for the subsidy will only be required to pay 35 percent of the group coverage continuation premium. The coverage provider initially pays the remaining 65 percent, but the government will later reimburse the coverage provider for these payments. Former employees will not be required to pay the full group coverage continuation premium and then seek a refund.
Q9: Will eligible individuals who previously terminated or declined to elect group continuation coverage have another opportunity to elect group continuation coverage and receive the subsidy?
If your employment was involuntarily terminated on or after September 1, 2008 and you initially declined to elect group continuation coverage, or elected group continuation coverage and later stopped paying premiums, your employer must notify you of an additional opportunity to elect group continuation coverage and receive the subsidy. You will have 60 days to enroll after receiving notification from your employer. This opportunity to enroll is referred to as the “extended election period.”
Coverage for eligible individuals who enroll during the extended election period will:
- Begin on the first period of coverage on or after Feb. 17, 2009.
- End on the date coverage would have ended if the eligible individual had elected group continuation coverage when he or she first became eligible. For example, if an employee was involuntarily terminated Sept. 1, 2008, did not elect COBRA continuation coverage after the layoff, but now chooses to elect COBRA, his or her COBRA coverage ends on March 1, 2010 – 18 months from when he or she first became eligible for COBRA, not 18 months from an election during the extended election period.
When providing coverage to former employees who elect group continuation coverage during the extended election period, employers may not apply pre-existing condition coverage limitations based on a gap in coverage between the layoff and commencement of the group continuation coverage.
NOTE: This discussion applies to health plans subject to federal COBRA. There is currently no requirement under Missouri’s state continuation law that health insurers provide the same extended election period for health plans of employers not subject to COBRA; however, the DIFP encourages health insurers to voluntarily provide an extended election opportunity to secure continuation coverage. Should the situation change in the future this discussion will be updated to clarify any new requirements.
Q10: What if an employer refuses to provide group continuation coverage or refuses to provide the subsidy?
The new law requires the federal Department of Labor to provide an expedited review of any employer’s refusal to allow a worker to elect group continuation coverage and receive the subsidy. Once the denied individual submits an application for review, the Department of Labor will make an eligibility determination within 15 business days. If you have additional questions about these reviews, contact the Department of Labor at 1-866-444-3272 or visit the agency’s Web site.
Q11: Does the new law extend the length of available group continuation coverage?
No. Both COBRA and state continuation (mini-COBRA) laws provide for up to 18 months of coverage.
Q12: Will individuals be eligible for the subsidy for as long as they are eligible for group continuation coverage?
The subsidy will not necessarily last as long as your group continuation coverage. For example, former employees typically qualify for up to 18 months of COBRA coverage. The subsidy lasts up to 15 months. Therefore, an eligible individual who chooses to pay for 18 months of COBRA coverage after March 1, 2009 would still have to pay three months of unsubsidized premiums.
Q13: Can an individual lose eligibility for the group continuation subsidy?
You can lose eligibility for the group continuation subsidy in two ways. First, as mentioned above, the subsidy lasts no longer than 15 months. Second, you become ineligible for the subsidy when you become eligible for new group health coverage or Medicare.
- Beneficiaries must notify their former employer when they become eligible for new group health coverage.
- Beneficiaries who willfully neglect to notify their former employer of their eligibility for a new group health plan must repay 110% of the subsidy to the federal government. No such penalty shall be imposed if the beneficiary demonstrates “reasonable cause” for the failure.
NOTE: Rules governing eligibility for subsidized COBRA differ from rules governing eligibility for unsubsidized COBRA. Eligibility for unsubsidized COBRA ends only when a beneficiary enrolls in new group coverage or Medicare. However, simply being eligible for new group health coverage disqualifies an individual from receiving the COBRA subsidy.
Q14: Does the subsidy affect eligibility for other income-based Government programs?
The subsidy will not be counted as income in determining eligibility for, or assistance provided under, any other federal or state program.
Q15: Does the new law affect individuals who qualify for COBRA due to eligibility for Trade Adjustment Assistance or eligibility for benefits from the Pension Benefit Guaranty Corporation?
The new law provides significant extensions of COBRA coverage periods for individuals who receive benefits directly from the Pension Benefit Guaranty Corporation or are eligible for Trade Adjustment Assistance. If you have additional questions about these extensions, contact the federal Department of Labor at 1-866-444-3272 or visit the agency’s Web site.
For more information
- United States Department of Labor
- Information is available on the DOL Web site or by calling the DOL’s Benefit Advisors at 1-866-444-3272
- United States Internal Revenue Service
- Information is available on the IRS Web site.
- Missouri Department of Insurance, Financial Institutions and Professional Registration
- Call the Consumer Services Section of the Division of Consumer Affairs at (800) 726-7390 or visit our Web site.