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COBRA Subsidy Loopholes & Gotcha’s

April 23rd, 2009 – Many employers and employees are confused about the Federal Stimulus Package and means to them and how the subsidies will work.

The “Stimulus Package” or “Recovery Package” are the more popular names for what is officially known as the American Recovery and Reinvestment Act of 2009.  The Federal Stimulus Package was signed into law on February 19th, by President Obama in Denver, Colorado.

The Federal Stimulus Package includes a 65% subsidy of COBRA premiums for eligible beneficiares that were laid off between Sept 1st, 2008 and December 31st, 2009.  In Colorado, the subsidy also applies to Colorado’s State Continuation Benefits, which are offered to employees of companies with fewer than 20 employees.

Employers with 20 or more employees you are responsible for funding the 65% subsidy and as an employer you will be reimbursed through a payroll tax credit.   If you are an employer with fewer than 20 employees then the insurance carriers is responsible for funding the 65% subsidy and they will be reimbursed through the carrier’s payroll tax filings.

Eligible employees that had an involuntary termination of employment between September 1st, 2008 and the end of this year can receive the 65% subsidy for a maximum of 9 months.  Most employees are eligible for COBRA or state continuation benefits for 18 months, so only the first 9 months are at the 65% discounted premium.

Some things that may disqualify an employee from eligibility include:

  • If the employer terminated the group health plan
  • If the employer went out of business

Companies were required to notify former workers of their eligibility by April 18th, 2009.  Former employees who haven’t received a notice or have questions about their eligibility should contact the company that administers their employee benefits program.

The Department of Labor also has a fact sheet about the COBRA subsidy at http://www.dol.gov/ebsa/cobra.html.

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