NEW COBRA CHANGES REQUIRE PROMPT EMPLOYER ACTION
COBRA gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. COBRA applies to employers with 20 or more employees. For employers under 20 employees, many states have created “mini-COBRA” programs to allow terminating employees to remain covered by the group health plan.
WHO IS ELIGIBLE UNDER ARRA’S CHANGES TO COBRA
Virtually all employers providing group health plans must comply with ARRA’s changes to COBRA. This includes small employers that are subject to state “mini-COBRA” laws currently in effect, including Maryland which applies to employers with 2 to 19 employees.
Under ARRA, workers who are involuntarily terminated from employment between September 1, 2008 and December 31, 2009 (and their qualified beneficiaries) with a federal modified adjusted gross incomes of less than $125,000 ($250,000 for joint filers) are eligible to receive the full COBRA premium assistance for up to nine (9) months.Individuals who have another COBRA qualifying event, such as death, divorce, or who voluntarily resign from their employment, are not eligible for the subsidy.
In addition, if an involuntarily unemployed person has become COBRA eligible during the relevant period (September 1, 2008 to December 31, 2009) and has not elected to purchase COBRA coverage, ARRA provides a special new election period of which employers need to be aware. Under this new election period, and starting on February 17, 2009, the involuntarily unemployed person (and their qualified beneficiaries) has sixty (60) days from receipt of a renewed individual notice of the extended election period to apply for a continuation of coverage from their former employer’s plan administrator (“COBRA Notice.”)
Eligible workers may pay reduced COBRA premiums during the nine (9) month period provided for under ARRA. The federal government will subsidize 65% of the premium, and the individual workers are responsible for the remaining 35%.
If the workers’ federal modified adjusted gross incomes exceed $145,000 ($290,000 for joint filers) they are not eligible for any subsidy amount. The subsidy phases out for workers whose federal modified adjusted gross income exceeds $125,000 ($250,000 for joint filers) but is less than $145,000 ($290,000 for joint filers). For these individuals, the Internal Revenue Service (“IRS”) will recapture ineligible subsidy payments by increasing that individual worker’s income tax for the tax year.
Individuals may elect to permanently waive subsidy eligibility by notifying the employer of such election. Also, individuals who request the premium subsidy as an eligible individual and are denied such request by their employer or group health plan administrator may have the right to appeal to the Department of Labor. The Department is currently developing a process and an official application form that will be required to be completed for appeals.
WHAT IS THE PERIOD OF PREMIUM SUBSIDY
The 65% COBRA premium subsidy is effective for the first period of coverage beginning on or after February 17, 2009. Therefore, for employers who bill COBRA premiums on a monthly basis, the subsidy will commence on March 1, 2009. There is no premium reduction for periods of coverage that began prior to February 17, 2009. The COBRA premium subsidy will end on the earliest of the following dates:
(i) the date that is nine (9) months after the first day that the individual became eligible for the subsidy;
(ii) the date the individual becomes eligible for coverage under any other group health plan (other than coverage consisting of only dental, vision, counseling, or referral services (or a combination thereof)), coverage under a flexible spending arrangement, or coverage of treatment that is furnished in an on-site medical facility maintained by the employer that consists primarily of first-aid services, prevention and wellness care, or similar care (or a combination thereof);
(iii) the date the individual is eligible for Medicare;
(iv) the date following the expiration of the maximum period of continuation coverage required under the applicable COBRA continuation coverage provision; or
the date following the expiration of the period of continuation coverage elected pursuant to the special COBRA election opportunity discussed below.
WHAT IS THE EMPLOYER’S COBRA NOTICE REQUIREMENT
ARRA has created a new election period for involuntarily unemployed persons (and their qualified beneficiaries) that have become COBRA eligible during the relevant period (September 1, 2008 to December 31, 2009) and have not elected to purchase COBRA coverage. Under this new election period, and starting on February 17, 2009, the involuntarily unemployed person has sixty (60) days from receipt of a renewed individual notice of the extended election period to apply for a continuation of coverage from their former employer’s plan administrator (“COBRA Notice”). The COBRA Notice must include information on the availability of the premium assistance. Model notices are expected from the Department of Labor within thirty (30) days after enactment of ARRA (i.e., on or about March 18, 2009). We will provide a link to those model notices in a future Alert. ARRA requires employers to notify all plan participants of the new subsidies and provide them with COBRA Notices within sixty (60) days of enactment (i.e, April 17, 2009.)
EMPLOYER REIMBURSEMENT PROCEDURES
The IRS will provide employers (or health plans, if they administer COBRA benefits) a credit against payroll taxes to cover the cost of the subsidy. If an employer is entitled to subsidy amounts greater than payroll tax liability, the IRS will credit or refund the excess amount to the employer as if an overpayment occurred. Furthermore, the IRS will treat an overstatement of reimbursements as an underpayment of payroll taxes, allowing for collection and assessment. The IRS intends to provide more guidance on this waiver procedure.
EMPLOYER REPORTING REQUIREMENTS
Employers seeking subsidy reimbursements must submit reports to the IRS. The IRS is expected to issue guidance and regulations shortly that will set the exact time and manner for the reporting requirements.
WHAT STEPS EMPLOYERS SHOULD TAKE IMMEDIATELY
In addition to the above-mentioned, employers should immediately take the following six (6) steps in preparation for compliance with the new COBRA premium subsidy provisions set forth in ARRA: (1) Employers should contact COBRA administrators and payroll departments to allocate responsibility for compliance with the new rules and getting the necessary information for reporting requirements; (2) Employers need to determine what constitutes an “involuntary termination” and how to identify affected employees for terminations occurring from September 1, 2008 through the end of 2009; (3) Employers need to search for employees involuntarily terminated on or after September 1, 2008, as well as the qualifying dependents of these individuals, who do not have a current COBRA election in effect for purposes of the extended election period; (4) Employers and plan administrators should update their COBRA premium payment methodology to take into account their payment for the 65% share of the COBRA premium; (5) Employers and plan administrators should revise their payroll systems and other procedures so that they will be ready to obtain reimbursement from the federal government without delay; and (6) Employers and administrators should develop any processes necessary to determine when the premium subsidy ends for an individual and to reinstate the 100 % COBRA premium charge with respect to such individual.
Jackson & Campbell, P.C.’s Employment Law Practice Group can assist you interpret the ARRA and provide more guidance on what immediate steps to take with regard to the changes to COBRA in order to minimize your risk of litigation, as well as provide counsel on other related employment matters.
The contents of this Employment Law Alert are intended for general informational purposes only and should not be considered legal advice. Moreover, the mailing of this Employment Law Alert is not intended to create nor does it constitute an attorney-client relationship.
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