The Holiday Gift of COBRA
By Chuck Conrad, Szarka Financial
The federal government has provided a wonderful holiday gift to employees who have recently lost their jobs. With the Department of Defense Appropriations Act of 2010, the COBRA subsidy found in the American Recovery and Reinvestment Act (ARRA) has been extended. In effect, the extended subsidy means that health care should be much more affordable for the short term for those that are in transition. In order to qualify for this subsidy, however, participants will need some help from their former employer(s) and HR friends. Understanding these pieces of legislation is critical to HR Professionals so they may assist their current and former employees. Here are the specifics:
- The COBRA subsidy has been extended from nine (9) months to fifteen (15) months.
- Under ARRA, an individual who lost their job between 9/1/2008 and 12/31/2009 would be eligible for a 65% subsidy of their COBRA premium for a period of nine (9) months, provided they meet certain eligibility criteria.
- The employer will be reimbursed for the COBRA subsidy via a payroll tax credit (Form 941 Line 12a)
- Individuals who previously declined COBRA coverage can re-enroll to be eligible for the subsidy.
- The subsidy has been extended to fifteen (15) months for those who have lost their jobs through 2/28/2010.
- For those already receiving the subsidy, this means an additional 6 months of subsidized COBRA premiums.
- For those who received the subsidy, but it expired and they chose not to continue the coverage, they have sixty (60) days to re-enroll and coverage will be reinstated retroactively.
For those laid off after January 1, 2010, but with a corresponding severance and health care package, the COBRA subsidy may not be applicable unless their benefits package expires by 2/28/2010. As such, it may very well be beneficial to the separated employee to be responsible for their own health care upon separation. In doing so, they would be entitled to the subsidized COBRA rate for fifteen (15) months, in lieu of receiving health care benefits as a component of their severance package for a short period of time and then being responsible for the FULL COBRA premium for the remainder of their transition. The advantage is that they’ve allowed their former employees to have access to affordable healthcare coverage longer and, in doing so the company receives a corresponding payroll tax credit in the process.
Szarka Financial Education provides objective employee financial education that motivates people to take action and helps them become better financial decision-makers. For more information on Szarka Financial, click here or visit www.szarkafinancial.com.
