COBRA benefit in stimulus bill requires employers to advance federal subsidy

The health care benefits included in the federal stimulus package aimed at recently laid-off workers will be paid for through a payroll tax subsidy to employers that could require significant paperwork for school district administrators.

In addition to providing billions of dollars in one-time grant money to states and school districts to protect education, the American Economic Recovery and Reinvestment Act also includes an offer that the federal government will pick up 65 percent of the premium for COBRA coverage of qualified laid off workers and their families for a nine-month period.

The worker will pay the remaining 35 percent cost of coverage.

Qualifications are limited to workers who lost their jobs between September 1, 2008 through December 31, 2009 and otherwise eligible for COBRA coverage. There are also income limits during the year of no more than $125,000 for an individual and $250,000 for a couple.

For school administrators, the key component is how the subsidy will be applied and as defined in the bill, a workers prior employer will be required to advance the 65 percent premium payment.

Reimbursement to the employer will come through a payroll tax credit.

Because many county offices of education manage tax filings for districts, officials urge superintendents to contact county offices about the proposed changes and potential workload impacts.

The Internal Revenue Service has posted on its website a revised Form 941 and revised instructions. The new form allows employers to file for the credit as soon as eligible former employees have requested COBRA coverage.

Jesse Weller, spokesman for the IRS, said the agency is still working on a comprehensive package of public instruction materials but interested employers should check the IRS website periodically for updates.

Rob Hayes, whose firm Custom Benefit Administrators of Rocklin has both public and private sector clients including some school districts, said that qualified former employees that have already elected COBRA will be eligible for the subsidy commencing March 1, 2009.

In addition, qualified former employees that chose not to elect COBRA originally will have a second opportunity to enroll effective March 1, 2009.

But, an employer is not required to be in compliance by the March 1 date.

Hayes notes: Almost no one will be in compliance by March 1st. The Department of Labor and IRS will not even provide model notices or guidance until well after March 1, 2009. Accordingly, employers have been provided with a 60 day grace period (starting February 17, 2008) to be in compliance with the new law.

Although the federal benefit will end after nine months, COBRA coverage would still be available for up to 18 months or in some cases 36 months.If a worker chooses to remain on COBRA after the subsidy period expires, the worker would be responsible to pay the full premium amount.

There are exceptions that would cause the subsidy to end such as a workers employer no longer offers any group health plan to employees or a worker fails to make the premium payment.

Workers that become eligible for coverage through a subsequent employer or Medicare, are required to notify the plan administrator immediately. Failure to do so could result in a penalty of 110 percent of the premium reduction provided after termination of eligibility.

To read more visit the IRS website: more