Every time the federal government produces something designed to benefit some group or another—or all of us—I remember my favorite of those so-called “Biggest Lies of All Time.” You know the one: “I’m from the government, and I’m here to help you.”
The latest government effort to help us is The American Recovery and Reinvestment Act (“ARRA”) that was enacted by Congress, signed by President Obama and became effective February 17, 2009. This is the same bailout program that gave untold billions of dollars to banks, insurance companies, automobile manufacturers and other deserving corporations. This act offers certain employees (and their families) new rights to COBRA premium assistance and is generally effective March 1, 2009. Almost immediately, the California legislature changed state law to comply with the new federal rules but, as is usual for emergency legislation, neither state nor federal bureaucrats have been clear on the mandatory new process, which is meant to benefit laid-off employees and to help employers deal with the usual unintended consequences we’re all familiar with.
No doubt President Obama has the best of intentions, but the new rules don’t, for example, seem to protect an employer who inadvertently makes a mistake in calculating the subsidy. It’s unclear exactly how to document tax credits applied to individual eligible employees who are terminated under the new rules, or how to request COBRA subsidies when election forms aren’t yet available.
Ninety days after the COBRA subsidies became effective, very few small business owners know much about the program. Here are some questions and answers about employer responsibilities for COBRA subsidies.
Do all employers have to participate in the COBRA subsidy program? All employers that offer group health plans and are subject to the federal and California COBRA continuation coverage requirements must participate. This includes self-funded plans and nonprofit groups that are subject to COBRA laws.
How much is the COBRA premium subsidy? The subsidy is equal to 65 percent of the premium amount a former employee must pay for continued health insurance coverage. In other words, that subsidy-qualified individual (and dependents) is only required to pay 35 percent of the total premium due to continue coverage. If you’re an employer with such a plan and you receive a 35 percent payment from a former employee who’s eligible for assistance, you’re required to make the remaining 65 percent payment. The federal government will reimburse the employer or the health plan for any subsidy paid on behalf of the eligible former employee.
Employers have only 90 days to apply premium credits to the 35 percent of the premium owed by an active COBRA participant. Most employers who request the subsidy are unaware, however, that they must submit a list of all COBRA events back to September 1, 2008, or that these new laws may increase their health insurance premiums.
How will an employer be reimbursed for the COBRA subsidy it’s provided to eligible individuals? The employer’s COBRA subsidy amount is reimbursed as a credit on the Employer’s Quarterly Federal Tax Return. Form 941 has been revised to allow for this credit. Employers can decide either to offset payroll tax deposits or claim the subsidy as an overpayment at the end of the quarter.
What happens if the amount of subsidy the employer is advancing is more than the employer’s tax liability? If the employer advances more in premium subsidy than the payroll tax dues, the overpayment could either be applied to the next return, or the employer could request a refund.
How long does the COBRA subsidy last? People can qualify for the subsidy any time between September 1, 2008, and December 31, 2009. Once an individual qualifies, generally, the COBRA subsidy is available for up to nine months. However, if that person becomes eligible for other group health coverage or Medicare, or reaches the end of the COBRA coverage period, the right to the COBRA subsidy ends.
If that person becomes eligible for other group health coverage or Medicare, he or she must provide a timely written notice that he or she longer qualifies for the COBRA subsidy. Failure to do so is punishable by a penalty equal to 110 percent of the COBRA subsidy received after becoming eligible for other coverage.
Does the subsidy apply to medical and dental plans or medical only? The subsidy is generally available for COBRA continuation coverage under any group health plan. This means that if the group plan includes health insurance beyond medical coverage, like dental and vision coverage, it applies to that coverage too. However, it doesn’t apply to a flexible spending arrangement (FSA) offered under a cafeteria plan.
Are people who resign or retire qualified for the subsidy program? No. The subsidy is only available to qualified beneficiaries who are eligible for continuation coverage by virtue of the employee’s involuntary termination of employment. Because resignation and retirement are voluntary actions, the subsidy isn’t available in these cases. However, former employees may still be eligible for COBRA continuation coverage at the full premium rate. In addition, we’re still puzzled as to how to treat employees who elect buyouts or who were terminated for other involuntary actions.
Where does an employer get more information and other details? You can always go online and look at the IRS Code and search for other resources, but a good professional health insurance agent should be able to answer your questions and give you full details. If you don’t have an excellent insurance agent willing to help, get one immediately. Your employee benefits are a major business cost. Your insurance carriers pay your agent to serve you and your employees, so take full advantage of your agent’s expertise. Ask for full details and help.
Jim Johnson, a Sonoma County resident for 28 years, is president of Santa Rosa-based Jim Johnson & Associates, an employee benefits and insurance company. He is past president and a member of the North Coast Association of Health Underwriters. You can contact him at Jim@JimJohnsonAssociates.com or (707) 571-0226.
