Employment: Recipients of The COBRA Subsidy Face Penalties If They Fail to Notify Their Former Employer of Other Health Coverage Eligibility

10.01.09

The American Recovery and Reinvestment Act of 2009 provides a subsidy of 65% of the COBRA health insurance premium for employees who are involuntarily terminated from September 30, 2008, to December 31, 2009. The subsidy requires only 35% of the premium to be paid for COBRA coverage for individuals, and their families, who have involuntarily lost their job and do not have coverage available elsewhere.

If an individual becomes eligible for other group coverage, either through a new job or Medicare, they should notify their plan in writing that they are no longer eligible for the COBRA subsidy. The forms for doing so should have been provided by the U.S. Department of Labor when the subsidy was approved.

If an individual continues to receive the subsidy after they are eligible for other group health coverage or Medicare eligibility, the individual may be subject to a penalty of 110% of the subsidy.

There may be circumstances when a former employee’s potential group health coverage is not as good as the subsidized COBRA coverage and the employee does not want to participate in the new coverage. The employee does not get to elect between the subsidized COBRA coverage and the new employer’s group coverage. The employee must accept the new coverage and terminate the COBRA coverage.

Although the new Internal Revenue Code section does not place a burden upon employers to monitor its former employee’s eligibility, employers should remind their former employees that they must notify you (or the benefit plan) when they become eligible for other group health coverage or they face a penalty with the IRS.

By Michael C. Redman, mredman@dsda.com
 

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Rebecca represents clients primarily in labor and employment
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