Congress Extends COBRA Premium Subsidy to February 28
| Abbreviations Key |
| DDAA: Department of Defense Appropriations Act, 2010 |
| COBRA: Consolidated Omnibus Budget Reconciliation Act of 1985 |
| DOL: Department of Labor |
| ARRA: American Recovery and Reinvestment Act of 2009 |
On December 19, 2009, lawmakers extended the 65 percent COBRA reimbursement coverage initially created by the 2009 stimulus act. Participants in employer-sponsored health plans who are involuntarily terminated can now receive the subsidy through the first two months of 2010. The previous cutoff date was December 31, 2009. The law also increases the subsidy period from nine months to 15 months. These extensions were part of the DDAA.
“The DDAA simply modifies the periods of coverage. It does not change the mechanics for obtaining the COBRA premium subsidy,” says Cindy Scheid, a tax principal with LarsonAllen. “Employers will need to review their recent terminations and comply with new notification requirements by February 17, 2010.”
Background on the COBRA changes
In early 2009, Congress made it less expensive for recently terminated employees to retain health care insurance by providing a 65 percent government subsidy of their COBRA premiums. The reimbursement applied to those terminated from September 1, 2008, through December 31, 2009, and the maximum period of repayment was nine months. These
COBRA health care changes were part of the
American Recovery and Reinvestment Act of 2009 (also known as ARRA or the stimulus act).
New eligibility requirements
Under the DDAA, employees are eligible for extended coverage if they:
- Have been involuntarily terminated between September 1, 2008, and February 28, 2010
- Are eligible for COBRA coverage
- Elect to reinstate coverage by February 17, 2010 or 30 days after being notified
Retroactive eligibility
The new legislation provides retroactive coverage for individuals whose 65 percent reimbursement had ended under the pervious nine month limit. Now these individuals will receive an additional six months. Those who exhausted their subsidy prior to the end of December 2009 (and chose not to continue COBRA at full cost) have an opportunity to reenroll under the DDAA extension. Terminated employees must elect to reinstate coverage by February 17, 2010, or 30 days after being notified. The subsidy is phased out when a person’s modified adjusted gross income exceeds $125,000 ($250,000 for joint filers) and is eliminated when it exceeds $145,000 ($290,000 for joint filers).
Notification requirements
Group health plan administrators will need to act quickly. The legislation requires administrators to notify current beneficiaries within 60 days of the bill’s enactment, which means February 17, 2010. In order to comply, employers must notify:
- Individuals who were eligible for coverage as of October 31, 2009, and those who were involuntarily separated on or after that date
- All COBRA participants who exhausted their nine month subsidy and cancelled coverage (they can now retroactively resume COBRA)
- All employees who are terminated from their jobs after December 19, 2009 through February 28 2010 (they are eligible for the extended support under the new legislation)
Businesses should be aware that Congress could extend the DDAA provisions even further into 2010,” notes Scheid.
Payroll reporting provisions
From a payroll standpoint, employers should temporarily remit the 65 percent premium on the government’s behalf, and then request reimbursement by claiming a payroll credit on
Form 941. Credit can be claimed for the quarter which the COBRA subsidy is provided or for a later quarter in the same calendar year. If payment of the former employee's 35 percent premium payment is received in 2010, the credit must be reported on a 2010 Form 941. It cannot be reported on a 2009 Form 941, regardless of the fact that the premium related to 2009 coverage.
How we can help
Contact us to discuss the new COBRA subsidy provisions and payroll reporting requirements. The IRS has also provided guidance on how to handle the COBRA premium subsidy credit and payroll reporting.
Notice 2009-27 answers frequently asked questions, and the
DOL and
IRS Web sites have helpful information on administration and eligibility, form preparation, reporting and documentation, and taxability and recapture.
For more information on the COBRA extension, contact Cindy Scheid, principal, at cscheid@larsonallen.com or 507-446-7112, or contact a tax principal in your region.