COBRA and State Continuation Coverage 101

One way Paychex Insurance Agency helps bring clarity to business insurance is through our Insurance 101 topics — providing business owners with quick information in plain language.

If you still have questions after reading our Insurance 101 topics, please call a licensed Paychex Insurance Agency Representative at 877-393-8868. We'll be glad to help you answer them.

What is COBRA?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives many workers and their beneficiaries the right to continue their group health plan for limited periods of time following termination, loss of hours, or other qualifying life events.

Who must offer COBRA?

Employers offering group health insurance plans that have 20 or more employees on at least 50 percent of the typical business days in the previous calendar year may be subject to federal COBRA requirements.

Who must offer state continuation coverage?

Most states pick up where COBRA leaves off, by requiring businesses with two to 19 employees not subject to federal COBRA to offer a state version of continuation coverage.

The following states do not require state continuation coverage at this time:

  • Alabama
  • Alaska
  • Arizona
  • Delaware
  • Hawaii
  • Idaho
  • Indiana
  • Michigan
  • Montana
  • Washington

Please visit your state's official website for more information about specific state continuation regulations, or call a licensed Paychex Insurance Agency Representative at 877-393-8868.

How can Paychex help administer your COBRA or state continuation plan?

Paychex takes the hassle out of managing your plan and meeting your regulatory requirements, whether you offer a COBRA or state continuation plan. Our COBRA Administration Service includes:

  • Starting and maintaining your program, or managing your existing program.
  • Sending timely notices to qualified employees.
  • Receiving and remitting participant payments.
  • Tracking terminations when integrated with Paychex Payroll.
  • Helping your business comply with COBRA-mandated programs.
  • Providing Web-based, self-service convenience for accessing your plan information, adding new plans, and entering qualifying events.
  • Answering your questions, and those of employee participants, through a toll-free support line.

How does integrating your plan with Paychex Payroll make administration easier?

When you offer group health insurance through Paychex Insurance Agency, the COBRA Administration Service can take even more responsibilities off your hands.

  • Tracking eligibility of new hires.
  • Removing terminated employees from coverage.
  • Communicating enrollments to the carrier.
  • Communicating terminations to the carrier.
  • Making on-time premium payments electronically, depending on carrier selection.

How does the economic stimulus plan and other recent legislation affect your COBRA responsibilities?

Under the American Recovery and Reinvestment Act of 2009 (ARRA), certain individuals may be entitled to a reduction in their COBRA premiums for up to 15 months for coverage periods beginning on or after February 17, 2009. In order to be eligible for the premium reductions, the individual must have lost coverage under an employer's group health plan due to an involuntary termination during the subsidy period beginning September 1, 2008 and ending on May 31, 2010. Eligibility for the subsidy is based upon the qualifying event date and not the qualifying event date puls the COBRA start date. Although eligibility for new participants to receive the premium subsidy expired on May 31, 2010, employers may still be collecting the reduced payments from participants that experienced an involuntary termination prior to that date.

These Assistance Eligible Individuals (AEI) are eligible for a 65 percent federal subsidy on their COBRA premiums for a maximum of 15 months. An AEI would be considered as having paid their COBRA monthly premium in full if payment of 35 percent is made to the employer. The federal government will reimburse the employer for the remaining 65 percent of the premium by allowing them to take a credit against their quarterly employer tax filings.

In order to report and calculate subsidy amounts, and for employers to receive the credit, the IRS has redesigned the 1st quarter 2009 Form 941: Employer's Quarterly Federal Tax Return. Two lines were added; 12a for taxpayers to indicate the dollar amount of the premium assistance payments made on behalf of eligible individuals, and 12b to indicate the number of individuals provided with COBRA premium assistance.

In order to take advantage of this premium subsidy, an AEI must notify their employer of their intention to do so. If an AEI taking advantage of the subsidy is considered to be a high-income individual ($125,000 single, $250,000 joint), they will be required to repay the subsidy on their tax return for the year in which the subsidy was provided.

Individuals that have requested to take advantage of the premium reduction assistance under the ARRA but have been denied this treatment by their employer may request a review of the employer's denial by the U.S. Department of Labor or the Department of Health and Human Services. Both Departments have 15 business days to make a determination once they have received a completed application for review. The DOL has updated its website to include the application for such review as well as specific instructions on how an individual can request this review. Included in the instructions are the eligibility requirements for the premium assistance as well as a link to include documentation to also be reviewed.

 

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