Legislative Changes to COBRA – An Update from Washington

By Mark Stember, Esq.

As you are aware, the House and the Senate both agree that an economic stimulus bill must be passed this month.  However, as with all things legislative, there are competing versions and visions of that bill.  Both the House and the Senate versions of the economic stimulus legislation amend COBRA in significant ways with very short proposed effective dates.  Currently, various members of the House have indicated that a bill will be passed by February 14th, while members of the Senate are more skeptical that such an ambitious deadline can be achieved.  In any event, it is clear that COBRA will likely be revised as part of the economic stimulus legislation, but the ultimate timing and scope of these revisions are still in a fluid state.  The following is a short synopsis of where employers and COBRA administrators stand currently with respect to this important piece of legislation.

COBRA Subsidy

Both the House and Senate bills include a COBRA premium subsidy for involuntary losses of employment between September 1, 2008 and December 31, 2009.  Under the subsidy, the qualified beneficiary would pay 35% of the applicable COBRA premium and 65% of the premium would be subsidized by the employer.  The employer may then claim the amount of that subsidy as a credit against its payroll taxes.  The subsidy would expire after 12 months (or 9 months under the Senate bill), leaving the remaining months as unsubsidized.  If a second qualifying event occurred during that timeframe, it appears that the qualified beneficiary would be able to continue utilizing the subsidy (e.g., a divorce or death).  The subsidy would be effective March 1, 2009 under the House bill, and April 1, 2009 under the Senate bill.  Both bills also require a special 60-day election period for those who are eligible for the subsidy but failed to previously elect COBRA – e.g., an individual who terminated employment in October 2008 and who did not elect COBRA would receive a second chance to enroll currently.  Further, the Senate bill would allow current COBRA participants to switch to any other medical option under the employer’s plan. 

COBRA Expansion

The House version also expands COBRA for those individuals who are at least 55 years old or who have at least 10 years of service.  Individuals in this category who lose health coverage due to loss of employment or reduction of hours would be allowed to remain on COBRA until they are eligible for Medicare or another employer’s group health plan.  The Senate bill has no similar provision.

Preparation for Change

If an economic stimulus bill is passed, it is likely to contain some version of the House and Senate provisions.  When the final bill will solidify and what it will look like when that occurs is currently unknown.  However, if all of the provisions currently contained in the bills remain intact, employers and their COBRA administrators will need to implement the revisions in a very short timeframe.  These revisions would likely include the following:

1.  Employers/COBRA administrators will need to prepare a special enrollment notice and send that notice to all employees who terminated employment since September 1, 2008.  These employees could then elect COBRA currently with the premium subsidy.

2.  Employers/COBRA administrators will need to prepare a special notice to existing COBRA participants informing them of the new premium subsidy and their new premiums going forward, and possibly allowing them the opportunity to change to another medical option offered by the employer.

3.  Administrative procedures will need to be developed to implement all of the changes (e.g., new premium structure, new notices, and calculating the amount of the subsidy actually utilized each month so that the proper amount can be credited against the employer’s payroll taxes).

4.  Additional notices will need to be developed to inform COBRA participants when they reach the maximum subsidy limit.

5.  The existing COBRA initial notice and election notice will need to be modified to include the new subsidy rules on a going forward basis.

Both bills require the DOL and Treasury to adopt model notices within 30 days of enactment.  However, the DOL and Treasury are routinely late on issuing model notices and due to the short effective date employers and COBRA administrators will need to proceed initially without any guidance from the agencies. 

As the legislative process progresses we will keep you updated on the latest developments on this important issue.  If you have any questions, please feel free to contact me at your convenience.

Mark L. Stember
Kilpatrick Stockton LLP
607 – 14th Street, NW, Suite 900
Washington, DC 20005-2018
202.508.5802 (P)
202.585.0018 (F)