Cobra Insurance
By Ruth Ann Ritter
The American Recovery and Reinvestment Act of 2009 that was passed by Congress on February 17, 2009 created a new employer COBRA premium assistance subsidy. Under the Act individuals who are involuntarily terminated from their employer are required to only pay 35% of the premiums if they elect COBRA coverage. The employer must pay the remaining 65% of the premiums. The employer recovers the subsidy by claiming a credit on its quarterly payroll tax returns. Employers may offset payroll tax deposits during the quarter by the amount of the premium. Additionally, the employer can elect to have any excess credit applied to next quarter liabilities. The Federal COBRA coverage can be any coverage under the employer's group health plan (including dental and vision).
Important - Eligibility must be involuntary termination from employment including termination, acceptance by the employee of an offer of early retirement or declining an offer of relocation. Death, divorce, or child reaching limiting age do not meet the eligibility requirements for Federal BUT they do for Pennsylvania.
Generally the COBRA premium reduction terminates the earlier of:
- The date the individual becomes eligible for group health plan coverage under another plan (new employer, Medicare)
- Nine months after the premium reduction started
- When the individual fails to timely pay the required premium for COBRA coverage.
Important - If the individual receives the COBRA subsidy and pays a reduced premium and the individuals modified adjusted gross income exceeds $ 145,000 single filer or $ 290,000 for joint filers then the amount of the premium reduction must be recaptured as an increase in the individual's Federal income tax liability. The recapture is phased in for single filers in excess of $ 125,000 and joint filers in excess of $ 250,000. The individual may make an election to waive their right to the premium reduction to avoid recapture. The waiver, once made, is irrevocable regardless of their modified adjusted gross income in a later tax year.
On June 10, 2009 Pennsylvania Governor Edward Rendell signed Act 2 of 2009 to help address the growing need to extend health care benefits for people who lose their jobs. This introduces a "mini-Cobra" benefit to workers in the state of Pennsylvania.
Pennsylvania Rules
- Mini-Cobra became law on July 10, 2009.
- The plan requires employers with 2-19 employees to offer a limited version of COBRA to their employees.
Mini-Cobra only applies to medical. - An employee who is involuntarily terminated and loses their eligibility for medical benefits
between July 10 and December 31, 2009 may qualify for a federal subsidy. - The employee must have continuous coverage for 3 months before the termination.
- The employee pays the employer 35% of the premium each month and
the state will pay the remaining 65% directly to the insurance carrier. - The coverage period is 9 months.