Changes to COBRA Included in Stimulus Bill

On January 28, 2009, the U.S. House of Representatives passed a stimulus bill that includes the “Health Insurance Assistance for the Unemployed Act of 2009” (“Act”). If enacted, the Act would create a temporary subsidy to assist laid-off employees in retaining their employer-sponsored health care benefits under COBRA. The Act would also extend the COBRA continuation coverage period for older and long-term workers.

Presently, employees electing COBRA must pay up to 102% of the cost of continuation premiums. The Act would provide that COBRA continuation premiums may not exceed 35% of cost. The premium reduction would last for up to 12 months for employees and families of employees who are involuntarily terminated between September 1, 2008 and December 31, 2009. Employees who were terminated during this period but prior to the passage of the Act, and did not elect COBRA coverage, would be given an additional 60 days to elect COBRA and to receive the premium reduction. Employers would be responsible for notifying laid-off employees (and other qualified beneficiaries) of their rights as a result of the Act and for paying the subsidized portion of COBRA continuation premiums for laid-off employees that elect continuation coverage. The federal government would reimburse employers in the form of a payroll tax credit or, if necessary, a direct reimbursement for amounts expended as a result of the subsidy.

Under the current COBRA rules, laid-off employees are generally entitled to COBRA continuation coverage for 18 months regardless of age or years of service with the employer. The Act would extend this period for laid-off employees age 55 and older and for those employees who worked for the employer for ten or more years. The COBRA continuation coverage period will end when such employees become Medicare eligible or secure coverage through another employer.

While many of the provisions of the stimulus bill continue to be discussed, employers and employees should anticipate some form of workplace health insurance assistance for laid-off employees to be included in the final bill, which is expected to be signed into law later this month. If you have any questions about how your group health plan and COBRA administration may be affected, please contact a member of Blank Rome’s Employee Benefits & Executive Compensation practice group.