Subsidized Health Insurance Premiums Under COBRA
The American Recovery and Retirement Tax Act of 2009 (the “Act”) was passed and signed into law this month. Included in the Act is a provision that will affect most businesses with employees. The Federal Government will subsidize health insurance premiums under COBRA for employees who were involuntarily terminated from employment between September 1, 2008 and December 31, 2009. Involuntary termination does not include those employees that were terminated for gross misconduct. Beginning March 1, 2009 , the Act requires the former employer to pay 65% of the terminated employee’s COBRA payment for a period of up to 9 months (or until the terminated employee becomes eligible for coverage under another employer’s plan or Medicare). The remaining 35% is payable by the terminated employee as a reimbursement to the employer, who is required to remit the full monthly premium to the insurance carrier. The 65% subsidy is deducted against the income tax withholding and payroll taxes on the employer’s quarterly payroll tax form 941. If the subsidy is more then the payroll tax, the government will refund the difference to the employer. The subsidy is not available for individuals with adjusted gross income in excess of $125,000 or for couples with adjusted gross income in excess of $250,000. What to do before March 1, 2009: The employer must notify or re-notify former employees involuntarily terminated from September 1, 2008 to date, of their new COBRA subsidy rights under the Act. The notice must also inform them of their right to elect COBRA coverage under the new enrollment period commencing on March 1, 2009. Additional guidance may be forthcoming from your payroll service or third party administrators. Further details are emerging daily. The department of Labor’s website is www.DOL.gov/EBSA .