For our employee benefits clients, we are continually updating our guidance for the new COBRA rules that were enacted on February 17 as part of the Stimulus package. Our March 2009 Client E-Alert, “Additional Changes To Recently Enacted Cobra Rules and New Model Notices and Forms Issued” summarized the changes to date. Since the March Alert, more changes have been made. This April 2009 E-Alert is an update. We will continue to monitor any subsequent changes and update you accordingly.



The federal economic stimulus package, signed into law in February, requires employers and other benefit plan administrators, multiemployer plans, and insurance carriers to change their COBRA procedures and provide new COBRA election rights to employees and certain former employees and their family members.

The legislation and the accompanying Department of Labor and IRS rules are exceedingly complex. Employers, carriers, and multi-employer plans are advised to work closely with counsel to ensure compliance.

In brief summary, the legislation provides the following:

In General: The law reduces premiums for eligible individuals and provides them additional opportunities to elect health benefits under COBRA. Those eligible will pay only 35% of the usual COBRA premium. The remainder is reimbursed to the coverage provider by way of a federal payroll tax credit.

Employers Covered: COBRA applies to plans sponsored by employers with 20 or more employees. Note, too, that the laws in many states (Massachusetts among them) make similar requirements of small businesses.

Eligible Individuals: Individuals eligible for reduced premiums include anyone eligible for COBRA – an employee or a family member – from September 1, 2008 to December 31, 2009 who:

  • elects COBRA coverage;
  • is eligible for COBRA as a result of the employee’s involuntary termination between the above dates; and
  • is not eligible for other group health coverage (for example, Medicare or a spouse’s plan).

Limits on reduction eligibility apply for those whose modified adjusted gross income exceeds $125,000 (for married taxpayers, $250,000). A phase-out begins at $125,000 and no reduction is mandated for those with AGI’s of more than $145,000 ($290,000 for married taxpayers).

Premium Reduction Period: Premium reductions are available beginning on February 17, 2009 and continuing for up to nine months.

Involuntary Termination: This term is defined very broadly and includes those who resign because of a threatened layoff, seasonal employees, and those who leave rather than accept a relocation. It does not include employees terminated for gross misconduct or those who end employment status due to disability, a reduction in hours, or contract nonrenewal. Involuntary termination means employment termination, not involuntary termination of coverage.

“Second Chance” Opportunities: Employees who were involuntarily terminated from September 1, 2008 through February 10, 2009 and who did not elect COBRA initially – or elected it but are no longer enrolled – have a second chance to elect COBRA, for the original maximum period. Check with counsel as to state mini-COBRA “Second Chance” rules.

New Notice Requirements: Plan administrators must provide detailed notices to current employees and certain terminated employees and beneficiaries about the premium reductions. The DOL has prepared model notices that are available on-line.

Expedited Review of Denials: The DOL will grant expedited review of the denial to those denied assistance-eligible status (within 15 business days).

Payroll Tax Filing Files: Employers must adopt recordkeeping procedures noting premium reductions and should include the tax credit on their payroll tax returns.



If you have any questions about this alert, please contact a member of our Employment Law Practice

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