New Federal Subsidy for COBRA Premiums
Under the American Recovery and Reinvestment Act of 2009, certain individuals who are eligible for continued health insurance coverage under the federal COBRA law, or the Massachusetts mini-COBRA law, may receive a subsidy for 65% of the costs of their health care premium. If eligible, instead of paying 100% of the premium, you will pay only 35%, for up to nine months, and the organization to which you pay the premium, usually your employer, will pay the remainder of the premium -- 65% -- and offset that expense with a tax credit.
Important requirements:
- You must have been involuntarily terminated from employment between September 1, 2008 and December 31, 2009.
- You must be eligible for COBRA benefits – if you were terminated for gross misconduct, for example, you are ineligible for COBRA.
- Even if you were previously eligible for COBRA benefits but you rejected those benefits, you may still be eligible for the new benefit. You have 60 days from receipt of notice from your employer to elect COBRA coverage.
- The benefit phases out for individuals whose gross income exceeds $125,000, and for those who file joint returns if their income exceeds $250,000.
New Questions regarding current eligibility for the COBRA premium reduction (posted 12/3/09)
If an employee is involuntarily terminated no later than December 31, 2009, but the qualified beneficiary is not eligible for COBRA until on or after January 1, 2010, is the qualified beneficiary eligible for ARRA premium assistance?
No. Under ARRA, an assistance eligible individual is a qualified beneficiary as the result of an involuntary termination that occurred during the period from September 1, 2008, through December 31, 2009, is eligible for COBRA continuation coverage at any time during that period, and elects the COBRA continuation coverage. An individual who does not become eligible for COBRA until after December 31, 2009 does not meet the qualifications to be an Assistance Eligible Individual and would therefore be ineligible for the ARRA premium assistance. Please note that this is the correct information based on the current law; however, there is pending legislation that could extend the ARRA premium assistance. Please subscribe to the COBRA page for updates.
My plan has told me that ARRA expires or stops on December 31, 2009. If I am an assistance eligible individual who was involuntarily terminated no later than December 31, 2009 and became eligible for COBRA no later than December 31, 2009, can I still receive the full 9 months of ARRA premium assistance?
Yes. Assistance eligible individuals are entitled to receive the full 9 months of premium assistance as long as they remain eligible. For example, if an assistance eligible individual started COBRA on November 1, 2009, they would be entitled to 9 months of ARRA premium assistance from November 1, 2009 through July 31, 2010 as long as they remained eligible. Please note that this is the correct information based on the current law; however, there is pending legislation that could extend the ARRA premium assistance. Please subscribe to the COBRA page for updates.
Other Questions, Answers and Links
What is COBRA?
COBRA is a federal law that gives workers who lose their jobs the right to purchase group health coverage provided by their former employer. If the employer continues to offer a group health plan, the employee and his or her family can retain their group health coverage for up to 18 months by paying group rates. In order to continue to participate in the group health plan, the employee must pay 100% of the health insurance premiums (plus a small administrative fee).
The plan administrator must notify affected employees of their right to elect COBRA. The employee and his/her family each have 60 days to elect the COBRA coverage; otherwise they lose all rights to COBRA coverage.
While COBRA does not apply to plans sponsored by employers with less than 20 employees, Massachusetts has a similar law, referred to as mini-COBRA, which applies to employers with less than 20 employees.
How does the ARRA change COBRA?
Under the American Recovery and Reinvestment Act (ARRA), signed into law by President Obama on February 17, 2009, "assistance eligible individuals" are entitled to a subsidy from the federal government to cover 65% of the costs of their COBRA health insurance premiums for up to nine months.
ARRA treats assistance eligible individuals who pay 35 percent of their COBRA premium as having paid the full amount. The premium reduction (65 percent of the full premium) is reimbursable to the employer, insurer, or health plan as a credit against certain employment taxes.
Who is an “assistance eligible individual?”
An "assistance eligible individual" is the employee or a member of his/her family who is eligible for COBRA continuation coverage as a result of the employee's involuntary termination between September 1, 2008 and December 31, 2009. You are not eligible for COBRA continuation coverage if you were terminated by your employer for “gross misconduct” or if you voluntarily left your employment. And if you are eligible for other group health coverage (such as a spouse's plan) or Medicare, you are not eligible for the subsidy.
Some individuals who are eligible for unemployment assistance may be ineligible for the new COBRA benefit, and some individuals who are unemployed but ineligible for unemployment may be eligible for the new COBRA benefit.
When does the benefit start?
The premium reduction applies to periods of coverage beginning on or after February 17, 2009. A period of coverage is a month or shorter period for which the plan charges a COBRA premium. The premium reduction starts on March 1, 2009 for plans that charge for COBRA coverage on a calendar month basis. The premium reduction for an individual ends upon eligibility for other group coverage (or Medicare), after 9 months of the reduction, or when the maximum period of COBRA coverage ends, whichever occurs first. Individuals paying reduced COBRA premiums must inform their plans if they become eligible for coverage under another group health plan or Medicare. There is no premium reduction for premiums paid for periods of coverage prior to February 17, 2009.
What if I opted not to take COBRA upon termination?
Individuals involuntarily terminated from September 1, 2008 through February 16, 2009 who did not elect COBRA when it was first offered, or who did elect COBRA but are no longer enrolled (for example because they were unable to continue paying the premium) may have a new election opportunity. This election period begins on February 17, 2009 and ends 60 days after the plan provides the required notice. This special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee's involuntary termination). COBRA coverage elected in this special election period begins with the first period of coverage beginning on or after February 17, 2009.
This special election period opportunity does not apply to coverage sponsored by employers with less than 20 employees. Legislation would be necessary to bring the election period under the Massachusetts mini-COBRA law into conformity with the new ARRA COBRA election period.
Are there any limits on the COBRA benefit?
If an individual’s modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for joint filers), then the amount of the premium reduction during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), the amount of the premium reduction that must be repaid is reduced proportionately. Individuals may permanently waive the right to premium reduction but may not later obtain the premium reduction if their adjusted gross incomes end up below the limits.
How does this affect the Medical Security Plan?
At the present time, Massachusetts is the only state that provides health insurance coverage for the unemployed, through the Medical Security Plan, for UI claimants whose family income is less than 400% of the federal poverty limit. There are presently two options available under MSP: (1) direct coverage, where MSP pays the entire costs of health care on a fee-for-service basis; and (2) premium assistance, in which MSP reimburses claimants for up to 80% of their health insurance continuation costs, which are usually COBRA premiums.
If a claimant is eligible for COBRA coverage, or some other health insurance continuation option, the claimant must take the premium assistance option, unless the claimant can claim a hardship, in which case the claimant would be eligible for the direct coverage option. If you are eligible for the new federal COBRA benefit, therefore, you must take the premium assistance option unless you can prove a hardship.
A claimant is presumed to have a hardship if his or her family income is below 200% of the federal poverty limit. A claimant whose family income is between 200% and 400% of the poverty limit may be determined to have a hardship if his or her income is insufficient to pay the COBRA premium along with other living expenses.
For those UI claimants eligible for MSP and the new federal COBRA premium assistance benefit, MSP will continue to reimburse its claimants for 80% of their COBRA premiums, such that, for any enrollee taking advantage of the COBRA premium benefit, MSP’s contribution to the premiums will be reduced from 80% to 28%, and each enrollee’s premium will be reduced from 20% to 7%. This will provide a savings to both claimants and the Medical Security Trust Fund which, through employer contributions, funds MSP.
How will an employer be reimbursed for the COBRA subsidy that provided to eligible individuals?
Employers will be able to seek reimbursement by claiming a credit on the IRS Form 941, which has been revised to allow for this credit. The credit will be claimed on Line 12a of the January 2009 revision of the Form 941, which was posted on the IRS website on Feb. 20. In addition, the Form 941 filer also needs to include the number of individuals provided COBRA premium assistance on Line 12b. If the credit claimed by an employer on the Form 941 is less than its expenses for the COBRA subsidy, the employer can apply the overpayment to the next return or request a refund.
Do employers need to submit any other information when submitting the Form 941 besides the entries on Lines 12a and 12b?
No additional information relating to the COBRA subsidy is to be submitted with the Form 941, either electronically or in paper form. Those employers claiming the credit, however, must maintain supporting documentation for the credit claimed, such as:
- information, including dates and amounts, on the receipt of the assistance eligible individuals’ 35% share of the premium;
- in the case of an insured plan, copies of invoices or other supporting statements from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA; and
- in the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals.
How can I find out more information?
For questions about the federal COBRA premium benefit, employees and employers can contact the U.S. Department of Labor’s Employee Benefits Security Administration at 1-866-444-3272 or visit the website at www.dol.gov/COBRA.
Employers can obtain additional information about their responsibilities from the IRS at its website, www.irs.gov.
For questions about the Medical Security Plan, call the plan directly at 1-800-908-8801, or visit www.mass.gov/dua/msp.