Update on COBRA or Continuing Health Insurance

There has been a recent change to how payments are made for continuing health care or COBRA coverage (hereafter “COBRA”) for former employees.  As part of the government’s stimulus effort, it will help subsidize the costs of COBRA coverage for former employees. 

Employers can receive thirty-five (35%) percent of the premiums for the cost of COBRA coverage from former employees.   However, Employers are required to pay the full premium payments upfront.  Employers will be responsible for paying sixty-five (65%) percent of the premiums for COBRA coverage, but Employers will be entitled to a tax credit for the difference as an offset against their payroll tax liabilities. 

Employers are required to provide notices to employees that were involuntarily terminated between September 1, 2008 and February 17, 2009.  Employers are required to send notice of the option to elect COBRA coverage within 60 days of February 17, 2009.  This notice must also be provided to individuals that previously opted out of non-subsidized COBRA coverage. 

There are additional notice requirements that the Federal Department of Labor is promulgating and you may find some of them at its website.   However, as of February 17, 2009, Employers are required to give notice to former employees of the option to elect subsidized COBRA coverage.  If the employee was terminated for “gross misconduct”, then the notice requirement is waived.  However, it is not clear what actions will amount to “gross misconduct.”

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