The enactment into law of HR 1, the American Recovery and Reinvestment Act of 2009, (ARRA) implements new temporary procedures for employers relating to the administration of Consolidated Omnibus Budget Reconciliation Act (COBRA) benefits.
HR 1 establishes a 65% government subsidy for eligible workers towards their COBRA coverage for up to 9 months. The Treasury Department will administer the subsidy, providing employers or health plans (if they administer COBRA benefits) with a credit against payroll taxes for the cost of the subsidy. Workers who were involuntarily terminated between September 1, 2008 and December 31, 2009, with annual incomes less than $125,000 (single) or $250,000 (couples) are eligible. Additionally, the employee, not the employer, will be responsible for abiding by the salary cap that determines eligibility. Should an employee accept COBRA coverage when they are ineligible, they will have to remit the subsidy to the federal government through their tax returns.
Qualified individuals who initially decline COBRA coverage have an additional 60 days after they receive notice of the special election period to receive the subsidy. Should an employee subsequently elect coverage, the effective date of coverage would begin February 17, 2009, the day that HR 1 was signed into law by President Barack Obama.
The Internal Revenue Service (IRS) released guidelines (IR-2009-15) on February 26, 2009, to assist employers with the task of administering these benefits. Employers can click HERE to visit the IRS’s website. The website contains a FAQ for employers as well as a revised version of Form 941 (Employer’s Quarterly Federal Tax Return), which employers will use to claim credit for the COBRA medical premiums they pay for their former employees beginning with the first quarter of 2009. The IRS will send this form to employers in mid-March.
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 35% 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;
- Other documents necessary to verify the correct amount of reimbursement.