The American Recovery and Reinvestment Act (ARRA, but perhaps best known simply as the "stimulus package"), implemented a 65% federal subsidy for the cost of COBRA coverage for individuals involuntarily terminated from their jobs between Sept. 1, 2008 and Dec. 31, 2009.

The subsidy is obtained through a payroll tax deduction for employers on Form 941, yet this summary reviews several alternatives to reduce employer costs associated with COBRA coverage overall and claiming this year's federal subsidy.

Many employers traditionally have subsidized a portion of an employee's COBRA costs following an involuntary termination, generally because a subsidy for COBRA benefits is a tax-free benefit to employees, and also results in FICA tax savings for an employer.

However, to the extent that an employer subsidizes all or a portion of COBRA benefits following a set of employee layoffs, the employer subsidy period also reduces the length of the federal subsidy period.

For example, assume an employer subsidizes COBRA coverage for three months following a layoff.

Under this scenario, the employee would only be eligible for six months of the federal COBRA subsidy rather than the full time allotted.

For the above reasons, I recommend that employers provide employees with additional severance benefits and eliminate their corporate subsidy for COBRA coverage.

This saves corporate resources, and employees may take maximum advantage of the federal COBRA subsidy.

As an alternative to eliminating their corporate COBRA subsidy, employers may elect to measure COBRA from the "loss of coverage" rather than the actual qualifying event.

For example, assume an employee is laid off April 1, and that the employee will continue on medical coverage through April 30.

The employer has agreed to subsidize COBRA coverage for three months, and elects (and documents) that COBRA coverage will be measured from the end of the employer subsidy when actual medical coverage is lost.

Under this alternative, the employee will have 18 months of COBRA coverage measured from July 31.

The employee is also eligible for nine months of the federal subsidy, even though the employee already received three months of health coverage under the employer's medical plan following the actual termination of employment.

Thus, the employer provides the benefits it intended, and the employees receive the maximum permitted federal subsidy, COBRA coverage and employer benefits.

Before an employer makes any changes to its COBRA coverage, however, an employer with an insured medical plan must confirm the carrier will allow such a change to occur.

For self-insured plans, the stop-loss carrier must approve measuring COBRA from the loss of coverage, rather than the qualifying event.

If the change is approved, all of the above options are available to the employer.

If not, an employer runs the risk of making representations to employees that may not be contractually permitted.

In this event, an employer could be liable for actual medical coverage beyond its expectations.

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Contributing Editor Frank Palmieri is an employee benefits attorney with Palmieri & Eisenberg in Princeton, N.J., and Alexandria, Va., and a fellow of the American College of Employee Benefits Counsel.

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DOL releases e-application for COBRA appeals

The Department of Labor recently launched a new Web page, for its online application for laid-off employees to appeal a denial of the COBRA premium subsidy under the American Recovery and Reinvestment Act, which allows laid-off workers to pay only 35% of COBRA premiums for nine months.

The DOL is encouraging employees to file their COBRA appeals online. However, the application also can be printed and faxed or mailed to the agencies offices.

The agency "will not review your denial until you submit a properly completed application form," officials note. "A separate application(s) must be completed for any family member whose plan information is not identical to the information you provide."

During the appeals review process, DOL investigators may need to share information on the application with the claimants former employer or plan administrator.

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