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There has been a lot of chatter on the news about the American Recovery and Reinvestment Act of 2009 (ARRA) and COBRA premium reductions. The Act was amended and now provides for premium reductions for health benefits covered by the Consolidated Omnibus Budget Reconciliation Act (COBRA).
COBRA allows workers who lose their health benefits, after terminating from a position, to purchase group health coverage provided by the plan for up to 18 months. The individual must pay the group premium costs of the insurance. This may be a higher premium than the employee paid but usually is less than the cost of individual health insurance. Employees must be notified of their right to elect COBRA and have 60 days to elect COBRA coverage.
AARA provides that eligible individuals will only have to pay 35% of COBRA premiums, while the other 65% of the premium will be reimbursed, through a tax credit, to the coverage provider. The premium reductions are for health insurance coverage that began February 17, 2009 or after, and last for 15 months.
Eligibility and Details of the Act
- Employees, or family members, who elect COBRA coverage after involuntary termination from September 1, 2008 through May 31, 2010; or March 2, 2010 through May 31, 2010 are eligible if:
- The termination is after an event that was a reduction of hours and reduction of hours disqualifies the employee from the group health plan because eligibility requirements are not satisfied.
- And if the reduction of hours occurred at any time from September 1, 2008 through May 31, 2010.
- The continuation coverage period is the date of the original qualifying event up to 18 months.
- There is a 15 month premium reduction period for assistance eligible participants.
- Individuals who have other group health coverage options, such as a spouse’s plan, are not eligible for the premium reduction.
- Premium reductions are not available prior to February 17, 2009.
- Individuals who qualify for assistance, and only pay 35 percent of their COBRA premium, will be treated as if they paid the full premium amount.
- The 65 percent premium reduction will be reimbursable to the employer, insurer or health plan as a tax credit against employment taxes.
- Individual eligibility for coverage ends when the individual becomes eligibility for other group coverage or when COBRA coverage ends.
- Individuals who are denied eligibility may request a review of the denial by the US Department of Labor. Once a request for review is made, a determination will be made within 15 business days.
- Income limits for premium assistance is $290,000 for joint filers or $145,000 for individuals or the premium reduction must be repaid.
- For individuals with income between $125,000 and $145,000 ($250,000 – $290,000 joint filers), the premium reduction that must be repaid is reduced proportionately.
- Penalties can be made against plan sponsors or health insurance issuer for up to $110 per day for each failure to comply with Secretaryâ€™s determination.
In light of these new changes, organizations should take a look at their internal processes to ensure they are compliant with these new regulations.