COBRA Obligations Expanded – Economic Stimulus Bill adds Premium Subsidy

The American Recovery and Reinvestment Act of 2009 (ARRA), which is intended to aid the faltering economy, includes several important provisions affecting the workplace.  HR professionals need to be knowledgeable about the new law’s workplace initiatives.  These provisions include:

Those who work in either HR or benefits now have additional work!  While I am not sure how this will "stimulate" the economy, it will provide more paperwork for HR.  The following article by Chris Olmsted does a very good job of explaining the new COBRA obligations.

Employers’ obligations under COBRA have been significantly increased by the American Recovery and Reinvestment Act of 2009 (ARRA).  ARRA is commonly known as the economic stimulus legislation recently passed by Congress and signed by President Obama.

In a nutshell, ARRA entitles employees terminated between September 1, 2008 and December 31, 2009 to continue health care coverage through COBRA by paying only 35 percent of their premiums for up to nine months.  The remaining 65% is paid by employers, who may deduct the cost from federal payroll taxes.  Employers must immediately comply with the law by providing notice to eligible individuals, collecting 35% of the premiums from the employees, paying 65%, and filing quarterly tax returns claiming a credit for the 65% subsidized amount.

Eligible Employees
An Employee and her covered dependents is eligible if: (1) she is involuntarily terminated (2) at any time between September 1, 2008 and December 31, 2009; (3) she elects COBRA coverage; (4) she does not earn more than $145,000 (or $290,000 for joint filers); and (5) is otherwise eligible for COBRA.

Involuntary termination.  Recall that under COBRA, there are a number of qualifying events.  Under ARRA, there is only one qualifying event: involuntary termination.  This means that the employee must be laid off or terminated.  Voluntary quits do not count.  Note that the employee need not be part of a reduction in force; the termination could be a solo event or even a for cause firing.  The only exception is where the employee is terminated for gross misconduct.  (COBRA already included this exception.)

Date of termination.  For an employee to become eligible for the ARRA premium reduction, he must be terminated between September 1, 2008 and December 31, 2009.  This sixteen month window is intended to help employees through what is expected to be the worst of the current recession.

Election.  The employee must elect COBRA coverage.  More on that below.

Income limits.  ARRA does not subsidize high income-earners, presumably because they can afford to pay regular COBRA premiums.  Therefore, individuals earning adjusted gross income of more than $145,000 ($290,000 for joint filers) are not eligible.  Further, the benefits begin to phase out at $125,000 of adjusted gross income.  Note that employers do not deny coverage to high-income earners should they elect coverage.  The employee will face a tax liability for the subsidy.

Otherwise eligible for COBRA. Under COBRA, an individual is not eligible, or loses eligibility, upon becoming eligible for coverage under another health plan (e.g. spouse’s plan, new job), becomes eligible under a flexible spending arrangement, or becomes eligible for Medicare. These limitations apply under ARRA as well.

Premium Subsidy Period
The premium subsidy for employees and dependents continues for up to nine months from the date of election. Coverage can end early if the individual loses COBRA eligibility (e.g. covered under another group health plan, Medicare eligible).

What if the employee becomes ineligible for the subsidy?  Employees receiving the premium subsidy are required to notify the former employer providing premium assistance of events causing the subsidy to cease.  Failure to do so may subject the non-complying employee to penalties equal to 110 percent of premium subsidies paid after the employee ceased being eligible for the subsidy.

Employer Notice Obligations
Employers already provide COBRA notices upon the happening of a qualifying event.  Notice must be given within 30 days of a termination.  ARRA modifies the notice obligations so that employees are informed that they may elect to receive COBRA with the premium reduction.

There are two aspects to this new notice obligation: (1) notice regarding the right for already terminated employees to retroactively elect COBRA with premium reduction; (2) notice regarding prospective rights.

Special Retroactive COBRA Election Opportunity: Individuals involuntarily terminated from September 1, 2008 through February 16, 2009 who did not elect COBRA when it was first offered or who did elect COBRA, but are no longer enrolled (for example because they were unable to continue paying the premium) have a new 60 day election opportunity.  Employers must provide notice of this eligibility within 60 days following February 17, 2009 (April 17, 2009).

1. When is the election period?  It depends on when the employer provides notice of the new rights.  This election period begins on February 17, 2009 and ends 60 days after the plan provides the required notice.  Thus employers should immediately send the required notice to employees involuntarily terminated between September 1, 2008 and February 16, 2009.

2. Does the retroactive election extend the coverage period?  No.  This special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee's involuntary termination).  Thus, if an employee terminated on September 1, 2008 elects coverage on March 1, 2009, his COBRA rights extend only 12 more months, because six months of eligibility have already passed.

3. When can special retroactive coverage begin?  COBRA coverage elected in this special election period begins with the first period of coverage beginning on or after February 17, 2009.  Most employers are on a monthly plan, and thus coverage will typically begin on March 1, 2009.  Coverage is not retroactive; it begins from the election date forward.

4. Does the retroactive election apply to small employers?  No.  This special election period opportunity does not apply to coverage sponsored by employers with fewer than 20 employees that is subject to State law.  (Note: Aside from the retroactive provision, ARRA does otherwise apply to small employers.)

Notice Requirement: Employers must provide the ARRA notice about the premium reduction to individuals who have a COBRA qualifying event during the period from September 1, 2008 through December 31, 2009.  As with regular COBRA, notice must be given within 30 days of termination.  Plan administrators may provide notices separately or along with notices they provide following a COBRA qualifying event.  This notice must go to all individuals, whether they have COBRA coverage or not, who had a qualifying event from September 1, 2008 through December 31, 2009.

Individuals eligible for the special COBRA election period described above also must receive a notice informing them of this opportunity.  This notice must be provided within 60 days following February 17, 2009.

Accordingly, employers and their group health plan administrators must update their COBRA notices for use through December 31, 2009. It is expected that most group health plans will provide the updated forms; employers should inquire with their plans.  Alternatively, the government is expected to publish forms in the near future.

 

The notices must include the following:

1. Forms and information necessary for establishing eligibility for the premium subsidy.

2. Contact information for the plan administrator.

3. Notice to eligible employees who previously declined COBRA coverage, regarding their new 60-day special election period to select COBRA continuation coverage.

4. Information about the employee’s obligations to notify the plan if the employee becomes eligible for coverage that would cause the premium subsidy to end;

5.  Information about the employee’s option to enroll in different coverage under the plan, if applicable (e.g. where employer offers additional/different coverage to existing employees)

6. A description of the beneficiary’s right to the reduced premium and any conditions on such right, “displayed prominently” in the notice (e.g. large print, bold, etc.