Get Scott's Life Thursday June 4, 2009
Health Insurance
Treatment for a COBRA Bite
By Jon M. Boffa, Esq.
At this point it is not unlikely that you know someone that has been laid-off or has had a reduction in hours from their job, or someone you know has a friend that has faced this unfortunate event. If they had health insurance benefits at this job they should have received a notice in the mail from their company informing them of their right to continue this coverage thanks to the Consolidated Omnibus Budget Reconciliation Act, or what has been commonly referred to as “COBRA.” In short, COBRA provides for continuation of benefits to those who qualify for up to 18 months (in some cases longer), but paid solely by the employee. The Federal COBRA law applies to employers with 20 or more employees, but many states have what is called “mini-COBRA” laws that apply to smaller groups so that their qualified individuals can continue to pay for their own coverage should they no longer remain eligible for active employee coverage. But thanks to the new American Recovery and Reinvestment Act (ARRA), which was signed into law this past February 17th, the COBRA rules have changed.
What has changed?
ARRA provides that any employee who suffered an involuntary termination or reduction in hours from their job during the period beginning September 1, 2008, and ending December 31, 2009, may be entitled to government subsidy equal to sixty-five percent (65%) of the cost for their COBRA coverage for up to nine months. So where a COBRA-eligible employee once paid 102% of the premium cost to maintain their coverage (employers are permitted to tack on an extra 2% to help in the administering of such coverage), they now only have to pay 35% of this cost.
Who is not eligible? Those who were fired for cause, or whose federal modified adjusted gross income exceeds $145,000 (or $290,000 in the case of a taxpayer filing a joint return). The available COBRA subsidy is reduced for years in which gross income exceeds $125,000 (or $250,000 for joint returns). Also, any person who is eligible for Medicare or another group health plan is not eligible to receive the government subsidy. It is up to the person receiving the subsidy to report to their former group plan administrator if/when any of the above conditions are met. If not, they will have to pay back 110% of the subsidy amount provided to them.
How does the subsidy work? It’s somewhat simple for the recipient of the subsidy… they just pay 35% of the COBRA cost. The group plan sponsor (i.e., their former employer, or current employer if they just suffered a reduction in hours) would be responsible for sending the employee a statement showing the proper amount to pay each month, and an explanation of how one would be disqualified (see above). The subsidy is coming from the Federal government in the form of an offset of the payroll taxes the group sponsor is paying. To illustrate this, if the employer/group sponsor has an employee electing COBRA coverage and this person qualifies for the subsidy, and the total cost of the insurance is $1,000 per month, the employee will only have to pay $350. The employer still has to lay out the $650 balance to the insurance company, but will recoup this cost by simply reducing this amount on their payroll tax remittances to the IRS, which is comprised of the amount they withhold from current employees’ paychecks, along with the employer contribution. So current active employees’ Federal tax withholding is in essence reimbursing the employer as they pay the 65% of the COBRA cost.
Due to the high costs involved with health insurance, it is not uncommon for an employee to waive their COBRA election. If this was the case for someone having been laid off from September 1, 2008 to the present, they did not miss out on this new form of relief. They should have received a noticed making them aware of a new 60-day COBRA election period. The same applies to those who initially elected COBRA coverage but then cancelled prior to the enactment of the ARRA.
So if you or someone you know became “involuntarily terminated” from group benefits on or after September 1, 2008, and this new subsidy is news to them, they should call the company’s HR department or someone in management right away. With the cost for health insurance these days being very high, the new ARRA law should help provide some relief to what is usually a big COBRA bite out of an individual’s wallet.
For any Estate Planning or Employment Law questions or needs in NJ please contact Jon:
By Jon M. Boffa, Esq.
Licensed in New Jersey
201-773-0337
jon@boffalaw.com
Tagged: Finance,
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