This year is the first that I can remember where there were more Federal changes to employment laws than California changes. That alone is historic! But the changes to COBRA almost seem like they should have been California’s idea because they are so favorable to the employee … or, in this case, the ex-employee.
The American Recovery and Reinvestment Act of 2009 (ARRA) was passed on 2/17/09 as part of Obama’s stimulus package. Employers subject to COBRA will now be providing a subsidy to offset the cost of COBRA coverage for employees who were (or are) involuntarily terminated (fired or laid off, unless terminated for gross misconduct) between 9/1/08 and 12/31/09. Yes, it’s retroactive!
You only have until 4/18/09 to get notices out to the affected employees and must send a notice even if they did NOT elect to take COBRA when it was previously offered to them. New employees and newly terminated employees are to receive special notices of these COBRA changes. These model notices can be found in HR Jungle’s free HR forms.
The subsidies are for up to 9 months for COBRA-eligible employees involuntarily terminated and also for affected spouses and dependents who are COBRA qualified beneficiaries. The simple explanation of this subsidy is that the employee/dependent only pays 35% of the COBRA premium and the employer pays 65%. You then get reimbursed for the 65% through a federal payroll tax credit so be sure to keep good records on the financial side of this. The subsidy ends when the eligible employee or dependent (1) gets other insurance coverage or (2) the 9-month subsidy period runs out or (3) their COBRA period ends.
Another aspect of ARRA is that you can offer these employees/dependents different coverage than they had pre-COBRA as long as it costs the same or less, is also offered to active employees, and is not just an add-on coverage (like dental-only, etc.) without including medical insurance. If this option is offered, they only have 90 days after receiving the notice to switch their benefits.
What to do?
Download the new model COBRA forms that the Feds have created. You’re not required to use them as-is but using them will be much easier than creating your own.
Make sure the General Notice is given to new employees with other new hire paperwork. This works for companies subject to either COBRA or Cal-COBRA (California’s version of COBRA for employers with only 2-19 employees). Also distribute the General Notice to all current employees eligible for benefits (whether they participate or not).
On or before 4/18/09, send the Notice in Connection with Extended Election Periods to any eligible employee/dependent who was originally eligible for and offered COBRA from 9/1/08 through 2/16/09. Yes, also send it to those people who declined COBRA. This extended period does not apply to state mini-COBRA coverages, like Cal-COBRA.
You will be wise to coordinate with your insurance broker to ensure you are providing the appropriate forms to the right ex-employees. You might also ask if they are planning to add any services that help with the administrative side of this new law.
