Tag: ARRA

COBRA Subsisdy Set to be Extended

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With the COBRA subsidy having expired, Congress has moved ahead to extend the subsidy.

Section 1010 of the Department of Defense Appropriations Act, 2010 extends the COBRA subsidy program for six more months, moving from a nine month subsidy to a 15 month subsidy.

It also extends the eligibility for workers from December 31, 2009 to February 28, 2010.

Since the change is included in the Department of Defense Appropriations Act for 2010 (military spending for the year), everyone expects President Obama to sign it shortly.

References:

COBRA Subsidy Expiring

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Congress continues to health care reform while the emergency COBRA subsidy is set to expire.

To help out the wave of workers laid-off, downsized and outsourced, Congress included a health insurance subsidy as part of the American Recovery and Reinvestment Act of 2009. The government would pay 65 percent of the COBRA premium for eligible workers who lost their jobs between September 1, 2008 and December 31, 2009.

If you lost your job between September 1, 2008 and March 1, 2009, the subsidy is set to expire. The law provided for nine months of the subsidy. If you lost your job after March 1, 2009, the subsidy is in place for nine months after you lost your job.

When this benefit expires, the employee will not lose the COBRA coverage. But the subsidy will expire and the employee will be bear the full cost of the insurance coverage.

There have been a few bills in Congress to extend the subsidy (Extended COBRA Continuation Protection Act of 2009 (H.R. 3930) and COBRA Subsidy Extension and Enhancement Act (S. 2730)) but they do not seem to be moving forward.

That means that employers will need to go back their old COBRA notice in January 2010. For those of you who had the benefit of the COBRA subsidy, the amount you pay for health insurance will go up.

References:

IRS Issues New Guidance on COBRA Subsidy

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The Internal Revenue Service has issued Notice 2009-27 (.pdf), providing new guidance relating to the COBRA subsidy made available under the American Recovery and Reinvestment Act of 2009. Notice 2009-27 provides guidance on the definition of involuntary termination and assistance eligible individual. It also provides more detail on calculating the subsidy and determining the election periods.

Notice 2009-27 defines “involuntary termination” as

…  a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services. An involuntary termination may include the employer’s failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services. In addition, an employee-initiated termination from employment constitutes an involuntary termination from employment for purposes of the premium reduction if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee. … The determination of whether a termination is involuntary is based on all the facts and circumstances….

The notice goes into much greater detail about “involuntary termination” if you are still unsure.

Notice 2009-27 defines “assistance eligible individual.”

An individual must be an assistance eligible individual to be eligible for the premium reduction. Under ARRA, an assistance eligible individual is a qualified beneficiary as the result of an involuntary termination that occurred during the period from September 1, 2008, through December 31, 2009, is eligible for COBRA continuation coverage at any time during that period, and elects the COBRA continuation coverage. In order to be a qualified beneficiary, the individual must be covered under the group health plan on the day before the involuntary termination (except in the case of a child born to or adopted by a covered employee during a period of COBRA continuation coverage or in certain circumstances where coverage was wrongfully denied the individual (see section 54.4980B-3, Q&A-1)). For purposes of Federal COBRA, an individual who loses group health coverage in connection with the termination of a covered employee’s employment by reason of the employee’s gross misconduct is not a qualified beneficiary and thus cannot be an assistance eligible individual.

Notice 2009-27 provides some more information on calculating premium reduction (questions 20 to 26), the coverage eligible for premium reduction (questions 27 to 29), the beginning of the premium reduction period (questions 30 to 32), the end of the premium reduction period (questions 33 to 44), the recapture of premium assistance (questions 45 to 46), and the extended election period (questions 47 to 55)

Although Notice 2009-27 answers many of the open questions, there are still some unanswered questions:

  • What mechanism should Multiemployer Plans use for collection of the premium reimbursement?
  • If an assistance eligible individual has paid for individual coverage through March and April of 2009, may he re-instate his COBRA as of May 1, 2009? If so, is he entitled to nine months of premium assistance starting May 1, 2009?
  • What penalties apply to employers who provide the subsidy, intentionally or unintentionally, to qualified beneficiaries who are not Assistance Eligible Individuals?

See also:

The New COBRA Subsidy: An Update for Employers

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The Employee Benefits and Executive Compensation group at Bingham McCutchen LLP put together a nice summary of the steps employers need to take in light of the changes to COBRA under the the American Recovery and Reinvestment Act of 2009. They dive into many of the details of who is eligible for the subsidy and how the reimbursement process works.

See my previous posts:

In the interest of full disclosure, I am related to one of the authors of the Bingham legal alert.

COBRA Expansion and Premium Subsidy Under The 2009 Stimulus Act

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Jack Eiferman, Director, Goulston & Storrs, specializes in healthcare and Adrienne Markham, Director, Goulston & Storrs, specializes in employment law gave this webinar and I thought I would share my notes.

Adrienne pointed out that federal COBRA is only for companies with more than 20 employees. Massachusetts, like many other states, have a mini-COBRA that applies to companies with fewer than 20 employees.

The ARRA added the new temporary COBRA subsidiary that applies to anyone “involuntarily terminated” since September 1, 2008 and prior to the end of 2009. There is an exception if you are involuntarily terminated for gross misconduct. Then you are not eligible for COBRA or the subsidiary.

Unfortunately the law does not define “involuntarily terminated.” If you want to get the subsidy you need to properly document the termination.

Employers are allowed to add a 2% administrative premium on COBRA coverage. The subsidy is 65% of the health care insurance costs. Employer gets a dollar for dollar credit on the payroll tax for the subsidy.

The subsidy benefit is currently for 9 months. (Although there is some discussion on extending the duration.) COBRA coverage is for eighteen months and remains unchanged.

If you already received checks for COBRA coverage. You can either refund the overpayment to the employee or credit the excess payments to future payments (as long as the catch-up within 120 days).

For COBRA eligible employees who did not elect COBRA or dropped the coverage, they get a second bite at the apple. You need to send a notice to those employees giving them another chance at electing COBRA coverage.

It also applies to other health coverage like dental and vision, as well as medical coverage. It does not apply to health care reimbursement plans.

The employer cannot pay the 35% payable by the employee. The employee or anyone except the employer must pay the 35%. The employer cannot claim their 65% credit until the employee pays their 35%.

There are some income requirements for eligibility. But this is the responsibility of the employee, not the employer.

What to do?

  • Identify all former employees who were subject to COBRA triggering events from September 1, 2008 to February 17, 2008.
  • Identify those who are eligible.
  • Send the right notice.
  • Manage the payment and election process.

It is important to have a compliance program for tracking eligible employees, premium payments, tax filings, etc.

See:

Model COBRA Subsidy Notices Released

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The American Recovery and Reinvestment Act of 2009 included some relief for laid-off employees. One of the biggest is a 65% subsidy for the payment of health plan payment from the government for certain eligible participants in COBRA health plan continuation coverage. ARRA mandates that health plans notify certain current and former participants and beneficiaries about this premium reduction.

The Department of Labor created and published model notices to help plans comply with these new requirements. Each model notice is designed for a particular group of qualified beneficiaries and contains information to help satisfy ARRA’s notice provisions.

General Notice – Full version (.doc) Plans subject to the Federal COBRA provisions must send the General Notice to all qualified beneficiaries (not just covered employees) who experienced a qualifying event at any time from September 1, 2008 through December 31, 2009, regardless of the type of qualifying event. This full version includes information on the premium reduction as well as information required in a COBRA election notice.

General Notice – Abbreviated version (.doc)  This version may be sent instead of the full version to individuals who experienced a qualifying event sometime on or after September 1, 2008, have already elected COBRA coverage, and still have it. This abbreviated version of the General Notice includes the same information as the full version regarding the availability of the premium reduction under ARRA, but does not include the COBRA coverage election information.

Alternative Notice (.doc) Insurance issuers that provide group health insurance coverage must send this Alternative Notice to persons who became eligible for continuation coverage under a State law. Continuation coverage requirements vary among States, and issuers should modify this model notice as necessary to conform it to the applicable State law. Issuers may also find the model Alternative Notice or the abbreviated model General Notice appropriate for use in certain situations.

Notice in Connection with Extended Election Periods (.doc) Plans subject to the Federal COBRA provisions must send this Notice to any assistance eligible individual (or any individual who would be an assistance eligible individual if a COBRA continuation election were in effect) who:

1. Had a qualifying event at any time from September 1, 2008 through February 16, 2009; and
2. Either did not elect COBRA continuation coverage, or who elected it but subsequently discontinued COBRA.

This notice includes information on ARRA’s additional election opportunity, as well as premium reduction information. This notice must be provided by April 18, 2009.

Unfortunately, the new information does not provide guidance on the definition of what constitutes an “involuntary termination” for purposes of the new COBRA premium subsidy. I have heard that the IRS is working on this guidance and may make it available in the next two weeks.

See:

More Guidance on Extended COBRA Coverage under ARRA

IRS_LogoAs part of the enormous stimulus package in the American Recovery and Reinvestment Act of 2009, the federal government included some relief for laid-off employees: COBRA Coverage Under ARRA. Some of the unanswered questions are starting to be answered.

The IRS has posted information: COBRA Health Insurance Continuation Premium Subsidy, with COBRA: Answers for Employers.

The COBRA subsidy amount is reimbursed as a tax credit. Employers should use the updated Form 941 (.pdf), Employer’s Quarterly Federal Tax Return, to report their COBRA premium assistance payments. So employers have to come out of pocket for the health insurance premiums for their “involuntarily terminated” employees, but get a reduction on their quarterly employment taxes. Line 12a on Form 941 (.pdf) is for the COBRA premium assistance payments.

The Department of Labor has put together a collection of information on COBRA Continuation Coverage Assistance Under The American Recovery And Reinvestment Act Of 2009. That site has more detailed information on employee eligibility.

See also:

COBRA Coverage Under ARRA

As part of the enormous stimulus package in the American Recovery and Reinvestment Act of 2009, the federal government included some relief for laid-off employees.

California Labor and Employment Law Blog

Mark Spring discusses the COBRA subsidy in ARRA over at the California Labor and Employment Law Blog: The Stimulus Bill’s Impact on COBRA.

The biggest change to COBRA is a 65% subsidy from the government for certain eligible COBRA participants.  The 65 percent subsidy is advanced by the employer and then recouped by a credit against payroll tax submissions.  The subsidy is available to eligible individuals for up to nine months.