It is part of the recently approved federal stimulus bill—the American Recovery and Reinvestment Act—that offers eligible terminated employees a 65 percent discount on COBRA coverage. Enacted in 1986, COBRA allows former employees to continue their health insurance coverage for up to 18 months after they are terminated.
Some companies are worried the federal requirement could cause cash flow problems because of the up-to-three-month delay for reimbursement, said Sue Mathiesen, director of research at McGraw Wentworth, a Troy, Michigan-based employee benefits and consulting company.
By April 18, employers are required to mail out the notices to eligible employees who have been laid off since September 1.
Employers who fail to notify terminated employees are subject to fines of $110 per day per former employee. The new regulation affects most companies with 20 or more employees.
“Identifying the employees and sending out the notices takes a lot of time and paper,” Willbrandt said.
The postage for the five-page notices costs more than $1,000, she said.
How the new COBRA rules work:
• The federal government will provide a 65 percent subsidy for up to nine months of the COBRA premium retroactive to March 1 for certain terminated employees.
• To be entitled to the subsidy, employees must have been involuntarily terminated between September 1, 2008, and December 31, 2009, and must be eligible for COBRA.
• A special election period exists for individuals involuntarily terminated on or after last September 1 who had not elected COBRA. They will have 60 more days after receiving the notice to elect coverage, which is retroactive to March 1 if they lost their jobs before then.
• The employer pays the 65 percent on the employee’s behalf and is then reimbursed through a payroll tax credit. Large companies may be reimbursed either weekly or monthly, but smaller employers must file for the credit with their quarterly payroll taxes.
• The employee must pay 35 percent of COBRA before the employer can request reimbursement of the other 65 percent. Employers that do not charge the full COBRA premium will not be entitled to reimbursement of 65 percent of the maximum COBRA premium.
For more information:
Tool: Resources for Keeping Up With COBRA Changes
U.S. Department of Labor at www.dol.gov/ebsa/cobra.html and the IRS at www.irs.gov/pub/irs-drop/n-09-27.pdf.
Thursday, April 23, 2009
Employers and employees should give workforce.com's COBRA Worries Cash-Poor Businesses: Firms Must Pay Now, Wait for Reimbursement a read. Here are the highlights.