July-15-09

COBRA changes under the American Recovery and Reinvestment Act of 2009 ("ARRA").

Question: We will soon be laying off a small group of employees and want to make sure we correctly comply with COBRA, which we understand recently changed. Can you explain the recent amendments to COBRA which allow a premium reduction for terminated employees?

TGL Response: The American Recovery and Reinvestment Act of 2009 ("ARRA") provides health insurance premium reductions for certain COBRA-eligible individuals. Under the ARRA, a COBRA-eligible employee who is terminated between September 1, 2008 and December 31, 2009 and who elects to continue coverage under COBRA will need to pay only 35 percent of their COBRA premiums for up to nine months commencing on or after February 17, 2009. The remaining 65 percent is reimbursed to the coverage provider-usually the employer-through a tax credit against certain employment taxes. If the credit amount is greater than the taxes due, the employer (if the coverage provider) must apply directly to the US Treasury for reimbursement. EMPLOYERS MUST PROVIDE NOTICE OF THE PREMIUM REDUCTION TO COBRA-ELIGIBLE EMPLOYEES WHO HAD OR HAVE A COBRA-QUALIFYING EVENT BETWEEN SEPTEMBER 1, 2008 AND DECEMBER 31, 2009. COBRA, and the section of the ARRA which amends COBRA, applies only to employers with twenty or more employees. New notification forms may be obtained from the Department of Labor website, www.dol.gov and IRS Form 941 credit reimbursement forms and information may be obtained from the IRS website, www.irs.gov. For more information regarding the foregoing, please contact John F. Tocci, the manager of TGL's employment law practice, or your company's tax advisor.