ARRA and the COBRA Subsidy: What These Two Acronyms Mean to Your Business

Beth Dean 03.01.09
108 Ipad On Bed

Designed to boost the economy, secure jobs, and offer aid to laid-off employees, the American Recovery and Reinvestment Act (ARRA) was signed into law on February 17, 2009, and includes many provisions that will impact businesses.

Nextep clients will feel little of this impact since Nextep will largely manage the work. This bulletin will explore how this bill will impact COBRA for both employees and employers.

COBRA Subsidy
A major component of ARRA is a 65% premium subsidy of COBRA continuation coverage for qualified beneficiaries. Qualified beneficiaries are considered employees who are terminated between September 1, 2008, and December 31, 2009. Qualified beneficiaries will only have to pay 35% of their COBRA, mini-COBRA, or state continuation premium for medical, dental, and vision up to nine months.

Employees must fulfill all three criteria below to qualify for the subsidy:

  1. The employee must be involuntarily terminated between September 31, 2008, and December 31, 2009. Voluntary quits and termination for gross misconduct do not qualify. Proving gross misconduct will be difficult and will only apply to extreme circumstances.
  2. To receive the full 65% subsidy, individuals must have an adjusted gross income of less than $125,000 if filing single or ($250,000 married filing jointly). A reduced subsidy will be available for individuals with an adjusted gross income between $125,000 and $145,000 (individual), or $250,000 to $290,000 (married filing jointly). Any employees earning more than $145,000 ($290,000 married filing jointly) will not be eligible for the subsidy.
  3. The employee must not be eligible for any other group medical coverage. If the employee can obtain coverage through a spouse’s plan, for example, he or she would not be eligible for the COBRA subsidy.

Highlights of the plan include:
The federal government will pay for the subsidy; however, the employer is responsible for paying the premium initially and will be reimbursed by the government. The employer portion of the premium is refundable as a tax credit on the IRS Form 941. The IRS has released a new form 941 for this purpose. The tax credit can only be reported on the IRS Form 941 after the 35% employee portion of the premium has been paid.

Revised COBRA statements must be sent out retroactively to all employees who have been terminated since September 31, 2008. To receive the subsidy, employees would elect the COBRA continuation coverage as laid out in the revised statement.

  • Employees can elect COBRA coverage with the subsidy even if they did not elect it during their initial eligibility period. If the company offers dual option plans, they may elect to offer both options to the employee.
  • If COBRA continuation coverage is elected during the second notification period (for employees terminated before February 17, 2008), the COBRA continuation coverage would begin on March 1, 2009. The coverage will not retroactively begin to the original qualifying event date. The maximum COBRA coverage period of 18 months remains in effect. The coverage period is measured from the original qualifying event, which would be the date the employee was terminated.
  • If COBRA continuation coverage is elected during the initial eligibility period (for employees terminated after February 17, 2009), coverage will be in effect the first of the month following the termination of employment.
  • Once the eligible employee elects the COBRA continuation coverage, he/she will pay 35% of the premium for nine months or until the maximum COBRA continuation coverage period expires, whichever occurs first.

Nextep’s Role:
If Nextep administers COBRA reporting and pays the benefit bills for you all responsibility for compliance will be transferred to Nextep. We will send out revised COBRA notifications, pay the 65% employer portion of the premium and process the tax credit through 941 filings.

If Nextep is not administering COBRA, those clients need to ensure revised COBRA statements are sent out, carefully record who elected COBRA continuation coverage, make copies of payment and paid benefit bills, and send all documentation to Nextep’s Benefits Department. Nextep will then review the documentation, determine if additional information is needed and issue a tax credit on the next applicable payroll.

If you have any questions regarding ARRA and how it impacts COBRA, please contact Nextep for further guidance.

Also on Nextep

Are You Paying Your High-Earning Employees Correctly? In a recent case, the Supreme Court issued an opinion clarifying the overtime-exempt status requirements under the Fair Labor Standards Act (FLSA).  The ruling emphasizes the importance of the salary-basis requirement for high-earning employees to be overtime-exempt under the FLSA. Here’s what you need to know: Under the […]
Read more
Is your pet insured? How about your identity? We all know the value of the major benefits, such as health, dental, vision, life, telehealth, and disability. But what about some of the lesser-known benefits? You and your employees may be missing out on some significant advantages. Pet Insurance Protect your pets with pet insurance options. […]
Read more
Federally-Approved Qualifying Events You may have heard the term “federally-approved qualifying event” when making changes to your health benefits outside the open enrollment window. Here’s a quick rundown of what that means. Any tax-free employee benefits fall under Section 125 of the IRS code. Because the IRS regulates these benefits, employees are only permitted to […]
Read more
8 Easy Ways to Save Money on Health Care Costs Admittedly, there are many things out of your control when it comes to healthcare costs. But, there are still steps you can take that add up to more dollars in your pocket. Following these tips can help save money on health care costs. Use preventive […]
Read more
Don’t worry. Nextep’s payroll processing is unaffected by the SVB closure. At Nextep, we understand that the recent closure of Silicon Valley Bank (SVB) has caused concern for our clients and their employees who bank with SVB. We want to assure you that Nextep’s ability to process payroll remains unaffected by this event. We are […]
Read more
Virtual doctor visits via telehealth are on the rise We’ve long touted the benefits of telehealth. These virtual doctor visits, conducted via phone or video rather than in-person, are a great way to get help for several health issues. Commonly handled diagnoses include Allergies Bronchitis Earache Sore throat Sinusitis Tobacco cessation Pink eye Strep throat […]
Read more
On December 29, 2022, President Biden signed into law two bills that add protections for pregnant and post-partum employees. Here is what we know. Providing Urgent Maternal Protections for Nursing Mothers Act The PUMP Act amends the Fair Labor Standards Act (FLSA) to expand coverage to all employees (exempt and non-exempt). Employers are required to […]
Read more
Your Guide to DOL’s Latest Guidance on Telework, Lactation Breaks, and FMLA Eligibility for Remote Employees Are you an employer of employees who telework, or employees who needs breaks for lactation? Then you’ll want to read this update! The US Department of Labor (DOL) recently released Field Assistance Bulletin (FAB) No. 2023-1, which covers several […]
Read more
Your Guide to the Latest Court Ruling on the FLSA Administrative Exemption If you’re an employer in Maine, Massachusetts, New Hampshire, Rhode Island, or Puerto Rico, listen up! The 1st US Circuit Court of Appeals has clarified the Fair Labor Standards Act’s (FLSA) administrative exemption, and it could be a game-changer for your business. In […]
Read more
Empowering Employees and Employers Alike to Create Inclusive Work Environments As of January 24, 2023, the Equal Employment Opportunity Commission (EEOC) has updated its guidance on correctly handling people with hearing disabilities at work under the Americans with Disabilities Act (ADA). This updated guidance is essential for employers looking to create a more inclusive and […]
Read more
Your Intro to the H1-B Visa Process Exciting news for employers eagerly anticipating the 2024 H-1B cap initial registration period! Federal immigration officials have officially announced that registration will open between March 1 to March 17, 2023. Employers can register for the H-1B cap using USCIS’s online registration system. The H-1B visa, as a reminder, […]
Read more
Rest Up! For Illinois Workers, ODRISA is Now Law Beginning in 2023, The One Day Rest In Seven Act (ODRISA) allows Illinois employees the right to take one day off in seven, plus breaks during a long workday.  Here’s a breakdown of the basics: Employees must get a minimum of 24 hours of rest every […]
Read more

Download Our App