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Employers receive  tax credit for paying  65 percent of premium

NORTH BAY -- Congress extended the 65 percent reduction in COBRA health premiums for unemployed workers, set to expire Dec. 31, 2009, and increased the maximum period for receiving the subsidy from nine to 15 months for workers laid off up until Feb. 28, 2010.

With this subsidy, eligible individuals pay only 35 percent of their COBRA premiums, and the remaining 65 percent is reimbursed to the coverage provider, their former employer, through a tax credit.

According to terms of this legislation, the extension applies only to assistance-eligible individuals who were involuntarily terminated -- fired or laid off, unless terminated for gross misconduct -- on or after Sept. 1, 2008, and who were not eligible for other health coverage, such as a spouse’s health plan or Medicare.

An “assistance-eligible individual” is defined as an employee who   experienced a COBRA “qualifying event” (involuntary termination of a covered employee’s employment) and who elected COBRA coverage in a timely manner.

Those who quit voluntarily are still eligible for COBRA but not the special subsidy.

[caption id="attachment_17938" align="alignleft" width="108" caption="John Fradelizio"][/caption]

“The extension to employer-provided group health coverage offers much-needed relief. Those who have reached the end of the original COBRA reduction period now have additional time to pay extension-related premiums that were due prior to this notice,” said John Fradelizio, managing director, North Bay and San Francisco, for Wells Fargo Insurance Services.

The original subsidy was designed to help the record number of people being laid off pay their COBRA premiums during a time of high unemployment and applies to periods of health coverage that began on or after Feb. 17, 2009.

This change is the result of a Dec. 19, 2009, amendment to the American Recovery and Reinvestment Act, which was part of the 2010 Department of Defense Appropriations legislation.

The new DOD amendment makes provision for premium reductions for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly called COBRA, which applies to firms with 20 or more employees.

Employers covered by Cal-COBRA, which applies to firms with from two to 19 employees, should obtain assistance from legal counsel regarding the impact of these changes on their businesses.

“Those who lost their subsidy and paid the full 100 percent premium for December 2009 should contact their plan administrator, or employer sponsoring the plan, to discuss a credit for future months of coverage or a reimbursement of the overpayment,” Mr. Fradelizio said.

Income limits can reduce eligibility. For example, if an individual’s modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000, or $290,000 for joint filers, then the amount of the premium reduction during the tax year must be repaid.

For taxpayers with adjusted gross incomes between $125,000 and $145,000, or $250,000 and $290,000 for joint filers, the amount of the premium reduction that must be repaid is reduced proportionately.

If you think that your income level may exceed these amounts, consult your tax preparer or contact the IRS at www.irs.gov.

For additional U.S. Department of Labor information about the subsidy extension, go to www.dol.gov/COBRA.