The recent Stimulus Bill passed by Congress is known in shorthand as ARRA. ARRA has provided a number of changes in COBRA requirements under the Employee Retirement Income and Security Act of 1974 (“ERISA”) which were added by the Consolidated Omnibus Budget and Reconciliation Act of 1985 (“COBRA”). COBRA rules generally allow an employee whose employment terminates (or has some other qualifying event) to elect to continue coverage under an employer’s group health plan for up to 18 months in most cases. Under the previous rules, the employer could charge up to 102% of the applicable premium which was paid solely by the employee.

ARRA has added a government-funded subsidy for eligible individuals (those with a modified adjusted gross income of less than $145,000 for singles, $290,000 for joint files [subject to phase-out in certain cases]). The subsidy is equal to 65% of the monthly COBRA premium and is available for up to nine months.

The COBRA subsidy is delivered to eligible employees via a reduced premium charge by employers. Employers may seek a reimbursement of this subsidy by off-setting the amount of federal payroll taxes otherwise owed by the amount of any COBRA premium subsidies paid. Normally the subsidy will primarily be payable only to individuals who are subject to an involuntary termination. Also, if an employee is guilty of “gross misconduct” ARRA does not apply. The Act does not define involuntary termination nor does it provide guidance on what constitutes gross misconduct. If you would like to discuss this additional burden imposed by Congress on your business, please feel free to call so that we may discuss some of the finer points with regard to the beginning date and end date of the subsidy period, and questions regarding involuntary termination or gross misconduct. Also certain reports are required to be filed with the IRS at the time of the deposit (or non-deposit if the credit is sufficient) to explain the reduced deposit of payroll taxes.

Finally, please be advised that you are required to provide notice of this new COBRA subsidy to all COBRA-eligible individuals even if they are not subsidy eligible individuals (i.e., earnings exceed the subsidy limit). The subsidy notice must be provided within the normal 60 day window following an individual’s COBRA qualifying event and you must send one to all persons who had such an event on or after September 1, 2008.

Paul J. Wallace