Q:     We know that the American Recovery and Reinvestment Act provides a subsidy of the COBRA premium for employees who lose their job.  There is confusion about the specifics, especially as it relates to probationary employees who resign in lieu of being non-reelected.  Please help! 

A:        You are correct about the ARRA providing a COBRA subsidy.  The information below is the best available at this time and should help clarify the eligibility rules and procedures in order to receive this subsidy:

Qualifying event for premium subsidy

• Loss of health coverage due to an involuntary loss of employment between 9/1/2008 and 12/1/2009. We have checked with legal and there is concern that probationary employees who resign in lieu of receiving a non-reelection will lose eligibility for this subsidy.  Legal’s advice, at the current time, is to recommend that employees do not resign in lieu of non-reelection because the language clearly states eligibility is contingent on an employee’s “involuntary termination.”   Until this term is clarified in the future, a resignation may affect your ability to receive this valuable COBRA benefit.

Income levels for eligibility

• An individual’s modified gross income may not exceed $125,000 or filing jointly over $250,000.  There is a sliding ratio for incomes up to $149,000 for individuals and $290,000 for filing jointly.  Please check with your tax preparer if you have questions.

Amount of subsidy

• 65% of the premium of any current health plan option offered by the employer to active employees is subsidized by employer.  The individual or someone other then the employer pays 35% of COBRA premium.  You may want to negotiate that the district will pay full COBRA coverage for the three months following the nine month strategy in order to cover employees for a full year.

Duration of subsidized COBRA coverage

• The subsidy is provided for up to 9 Months.  Make sure that the COBRA eligibility starts after the district provides twelve months of insurance coverage to the employee.  The actual month will depend on when the employee was hired and received his or her first month of coverage.  Check your contract language on when coverage starts. 

Enactment date of subsidy

• Subsidy is effective for periods of coverage beginning on or after March 1, 2009. This includes a 60-day special rule for refunds or credits to COBRA beneficiaries if they paid full premium before being aware of the subsidy.  

Option to change coverage

• Individuals who are eligible for the COBRA premium subsidy may elect any health plan option offered by their employer to active employees which has the same or lower premium as the individual’s previous coverage option. Group dental and vision are also covered.  The subsidy does not apply to HSA’s, Flex Accounts, and Cafeteria Plans that do not provide major medical. 

Payroll tax credit

• Employers may claim tax credit against periodic deposits for wage withholdings for the portion of COBRA premium not paid by individual.  In the unlikely event that an employer’s claims for COBRA subsidy payments exceed the amount of wage withholdings, the Treasury will reimburse the employer directly for the excess amount.

We are still waiting for the final regulations about administering this subsidy.  As we find out more information, we will send it to you.  If you have any further questions, please contact your NODD Specialist or Kathy Rallings.