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Thursday
Feb192009

You Must Comply With New COBRA Requirements

The Stimulus Bill, The American Recovery and Reinvestment Act of 2009, is now law. That law does a lot of things, including creating new COBRA requirements. These new requirements apply to every employee you have involuntarily terminated since September 1, 2008 or may terminate between now and December 31, 2009.

Five things you should do to comply with these new requirements are set out below. You should begin to prepare now.

COBRA is the Consolidated Omnibus Budget Reconciliation Act. It requires employers with 20 or more employees to give terminated employees the option to continue coverage, at the former employee’s expense, under the employer’s group health plan.

Now, buried in the Stimulus Bill’s 1,071 pages is a 65% subsidy for nine months for eligible COBRA participants. You as an employer must advance this subsidy. You can recoup the amount advanced as a credit against your payroll tax deposits.

As an employer, you should take the steps listed below.

1. Identify Eligible Former Employees. Make a list of every employee you have involuntarily terminated since September 1, 2008.

The bill does not define “involuntary termination.” Your list should include, however, every employee you laid off or terminated for reasons other than misconduct. If you asked an employee to resign, you should also include that employee on your list. This is true even if the reason you asked them to resign was for suspicion of misconduct.

If you have questions about the eligibility of one or more former employees, make a note on your list. We can then look at this as more becomes known about the COBRA subsidy requirements.

2. Send Notice to Former Employees. You must offer a new COBRA election, with notice of the subsidy provisions, to all eligible former employees (that’s the reason for the list above). These former employees will have 60 days to elect COBRA coverage back to the date of their involuntary termination. The subsidy, however, applies only to future COBRA payments, not past payments.

The former employees likely to take advantage of this second COBRA election are those who have suffered medical problems and incurred substantial uninsured medical expenses. If the expenses exceed the cost of COBRA, then it makes sense to take advantage of this second COBRA election opportunity. If the expenses are less than the COBRA cost, they probably will not elect continuing coverage.

The Department of Labor has 30 days to prepare new notices for you to use.

3. Send Notice to Employees Terminated in the Future. Any employees you involuntarily terminate between now and December 31, 2009 must be given a COBRA notice setting out the subsidy provisions. This is in addition to your current COBRA notice requirements. We will see if the Department of Labor publishes one form of notice for all terminated employees or creates a second additional notice for involuntarily terminated employees.

4. Review the COBRA Subsidy Requirements. We should see more information on the new COBRA subsidy requirements soon. Your payroll and benefits manager, human resources manager or some other member of your organization needs to be aware of the COBRA subsidy eligibility requirements and other important provisions.

5. Develop Compliance Procedures. You must establish procedures to ensure that you comply with all of the new COBRA provisions. Then you must make sure you implement those procedures.

Here it is, just the middle of February and LegalBriefs have already mentioned five major Federal employment law changes this year. They are the Ledbetter Fair Pay Act, new FMLA regulations, new ADA amendments, a Supreme Court harassment ruling and now this COBRA subsidy. More Federal rules and legislation are expected.

Oregon is getting into the act as well. New regulations for the Oregon Family Leave Act are on the way. With the Oregon legislature in session, we can expect new state statutes will soon follow.

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