COBRA Provisions in the American Recovery and Reinvestment Act of 2009 (ARRA)
By Mary Ellen Schill
February 25, 2009
Attorney Mary Ellen Schill spoke in Eau Claire on February 26 on the new COBRA rules found in the American Recovery and Reinvestment Act of 2009 (the stimulus law signed by President Obama on February 17, 2009). Since these new rules affect ALL employers sponsoring group health plans (regardless of size, and both public and private sector), we would like to share her outline with all of our clients and friends.
I. ARRA You Ready??
II. Employers Must Start Complying Now!
III. No Small Employer Exception, This Applies Even to Employers Who Are Only Subject to Wisconsin s Insurance Continuation Provisions.
IV. Governmental Employers Are Also Subject.
V. What s It All About? There Are Three Main Provisions.
A. Premium Assistance. For any period of coverage beginning on or after February 17, 2009 (March 1, 2009 for calendar month periods of coverage), a qualified beneficiary is deemed to be paying the required COBRA premium if that individual (or a person other than the individual s employer pays on behalf of such individual) pays 35% of the COBRA premium.
B. Government Assistance. The person to whom premiums are payable will be reimbursed by the amount of premiums not paid by the individuals because of the premium assistance requirement.
If a multiemployer health plan, the reimbursement goes to the plan.
If a group health plan subject to COBRA because of the Internal Revenue Code, ERISA, or the Public Health Service Act, or if some or all of the coverage is not provided by insurance, then the reimbursement goes to the employer.
If none of the above, then the insurer providing coverage under the plan is eligible for reimbursement. This would apply to those employers only subject to Wisconsin insurance continuation, because presumably the carrier is giving the premium reduction, not the employer.
C. Alternative Plan Enrollment. Certain individuals may elect to enroll in coverage other than the coverage the person had at the time of the qualifying event. This requirement is optional and employers do NOT have to allow these changes.
VI. Who is Eligible For the Premium Assistance?
A. Any COBRA qualified beneficiary who a) at any time during the period from September 1, 2008 through December 31, 2009 (inclusive) is eligible for COBRA continuation coverage, b) such qualified beneficiary elected COBRA coverage, and 3) the qualifying event consisted of the involuntary termination of the covered employee during the relevant period (other than for gross misconduct). A COBRA qualified beneficiary who meets all of these requirements is an Assistance Eligible Individual.
B. Certain individuals who are not Assistance Eligible Individuals are also entitled to premium assistance. Any individual who does not have COBRA coverage on February 17, 2009 but who would have been an Assistance Eligible Individual had COBRA been elected, is given another COBRA election period.
The employer must give notice of this special COBRA enrollment opportunity, and the individual has from February 17, 2009 until 60 days from the date notice is given to elect COBRA.
Any election of COBRA under this special enrollment is NOT entirely retroactive, coverage will begin with the period of coverage beginning on or after February 17, 2009 (i.e. March 1 for calendar month periods of coverage). So, coverage is NOT retroactive to the qualifying event date.
If the individual elects COBRA continuation coverage under this second chance election, COBRA is only extended through the date that the person otherwise would have had COBRA had COBRA been initially elected in the first place.
Individuals who make the second chance COBRA election will have special rules for determining a break in coverage under the preexisting condition exclusion rules of HIPAA. The period beginning on the date of the qualifying date, and ending March 1, 2009, will be disregarded for purposes of determining whether there has been a 63 day period without creditable coverage.
C. High Income Individuals are taxed on all or part of the subsidy (the reduced COBRA premium). If the individual s modified adjusted gross income exceeds $125,000 (single) or $250,000 (married filing jointly), then the subsidy is recaptured as taxable income. The subsidy is fully taxed at $145,000 single and $290,000 married filing jointly, and taxed in part on modified adjusted gross income between $125,000 and $145,000 (single) and $250,000 and $290,000 (married filing jointly). High Income Individuals can elect to waive the COBRA premium assistance and avoid recapturing the tax on the subsidy by making a permanent election (on a form prescribed by Treasury) and notifying the employer or plan, as applicable, of the waiver.
VII. What is Premium Assistance?
A. All Assistance Eligible Individuals will be treated as having paid the required COBRA premium if the person pays (or a person other than the individual s employer pays on the person s behalf), 35% of the COBRA premium.
B. Premium assistance does not need to be provided for months of coverage beginning on or after the earliest of the following dates:
The date that the individual is eligible for coverage under any other group health plan (other than limited health plans) or Medicare;
The earliest of:
a. The date which is 9 months after the first day of the first month that the premium assistance began; or
b. The date following the last day of the maximum period of COBRA.
C. The Assistance Eligible Individual must notify the group health plan in writing if such individual has become ineligible for premium assistance due to eligibility for coverage under another group health plan or Medicare.
VIII. What is the Alternative Plan Enrollment Requirement?
A. An Assistance Eligible Individual must be given the opportunity to enroll in coverage under an alternative plan the employer sponsors, one different than the option the person had at the time of the qualifying event.
B. Employers are NOT required to offer this alternative plan enrollment option, but if it is offered then the requirements of ARRA must be met.
The premium for the alternative coverage cannot exceed the premium for the existing coverage;
The alternative coverage must already be offered to the employer s active employees; and
The alternative coverage is not limited coverage (e.g. dental, vision, EAP, FSA, or on-site medical care).
C. If an employer decides to give Assistance Eligible Individuals the plan enrollment option, the employer must provide an election notice and an election period of at least 90 days.
IX. How Does ARRA Change the COBRA Notice Requirements?
A. Qualified beneficiaries must be given notice of the premium assistance and the alternative plan enrollment requirements, in the COBRA qualifying event notice for any qualifying event which occurs between September 1, 2008 and December 31, 2009.
B. For employers subject to Wisconsin continuation coverage but not federal COBRA, the Secretary of Labor in consultation with the Secretary of the Treasury and the Secretary of Health and Human Services will develop procedures for notifying state COBRA qualified beneficiaries.
C. The notice requirement can be satisfied by including it in existing notice forms or by use of a separate document.
D. The additional notification must include:
Forms which allow the individual to established eligibility for a premium reduction;
The name, address, and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with the premium reduction;
A description of the second chance COBRA election period;
A description of the obligation that the qualified beneficiary has to notify the group health plan that such individual has become eligible for coverage under another group health plan or eligible for benefits under Medicare, and a description of the penalty for failing to notify the plan;
A description, displayed in a prominent manner, of the qualified beneficiary s right to the premium reduction and any conditions on entitlement to the reduction; and
A description of the option to enroll in alternative coverage (only if the employer allows enrollment in alternative coverage).
E. For qualified beneficiaries who are entitled to the second chance COBRA election period, the notice must be provided within 60 days of February 17, 2009. Failure to provide this notice is treated as a failure to give the COBRA qualifying event notice.
F. The various Secretaries (Labor, Treasury, and Health and Human Services) are required to publish a model notice within 30 days of February 17, 2009.
X. What if an Individual Thinks He/She is an Assistance Eligible Individual But the Employer Disagrees?
A. ARRA provides for an expedited review process if an individual asked to be treated as an Assistance Eligible Individual but the employer/health plan refused the request. This expedited review is to be conducted by the Secretary of Labor in consultation with the Secretary of Treasury. The determination upon request for review is to be made within 15 business days of receipt of the application for review by the individual. The applicable Secretary is to review the application de novo (no deference to the employer s prior decision) and the determination will be final (as far as the administrative review is concerned).
B. If appealed to a court, the court is supposed to give deference to the Secretary s determination.
XI. What if a Qualified Beneficiary Does Not Inform the Employer/Plan of No Longer Being Eligible for the Premium Assistance?
A. Any person who is required to notify a group health plan of his ineligibility for the premium assistance must pay a penalty of 110% of the premium reduction, for all of the premium reduction after the person lost eligibility for the reduction.
B. The penalty is not applied if the failure to notify is due to reasonable cause and not willful neglect.
XII. When Does the Employer Get Reimbursed??
A. The person to whom COBRA premiums are payable (usually the employer, but could be the carrier in the case of Wisconsin state continuation) is entitled to reimbursement.
B. The amount of reimbursement is equal to the premiums not paid by Assistance Eligible Individuals. However, this gets tricky when the COBRA premium was already subsidized in part by the employer.
The employer can only claim reimbursement of 65% of what the total COBRA premium would be IF the amount actually paid by the Assistance Eligible Individual is 35% of the total COBRA premium.
This means that any currently existing employer COBRA subsidy (or a subsidy which is required by a collective bargaining agreement or severance agreement) will reduce the total reimbursement available to the employer.
For example, if the family COBRA premium is $1000, but under a severance agreement the terminated employee is only required to pay $200, then the reimbursement which the employer can claim is limited to $370. $200 is 35% of $570, so 65% of $570 is $370. The employer must determine what the COBRA premium WOULD be if the amount the Assistance Eligible Individual was paying was 35% of such hypothetical amount, and then the reimbursement cannot exceed 65% of that hypothetical amount.
Of course, this means that if the employer pays 100% of the COBRA premium, and therefore the Assistance Eligible Individual pays nothing, then nothing is 35% of nothing, and 65% of nothing is nothing as well.
C. On the date that the Assistance Eligible Individual s premium payment is received (the 35%), the employer/carrier is treated as having paid to Treasury payroll taxes in an amount equal to the amount of reimbursement described above (the premiums not paid by the Assistance Eligible Individual).
D. Treasury is supposed to develop a claim form for reimbursement. In addition, Treasury is allowed to require a report which could include:
An attestation of involuntary termination of employment for each covered employee for whom reimbursement is being requested;
A report of the amount of payroll taxes offset for the reporting period and the estimated offsets of such taxes for the subsequent reporting period;
A report of the tax identification numbers of all covered employees, the amount of subsidy reimbursed with respect to each covered employee and qualified beneficiary, and a designation with respect to each covered employee as to whether the subsidy reimbursement is for coverage of one individual or two or more individuals.
E. So, in effect the reimbursement due from Treasury is offset against the employer s payroll tax remittances. If remittances are less than the reimbursement, then the Treasury treats it as an overpayment of taxes, and processes a credit or refund as applicable.
F. Any overstatement of reimbursement is treated as an underpayment of payroll taxes, and that underpayment can be assessed and collected by Treasury just like other underpayments of payroll taxes.
G. No advance reimbursements are allowed, payment of the reduced premium must be received from the Assistance Eligible Individual first.
H. Payroll taxes for this purposes include wage withholdings, and FICA taxes (both the employer and employee portion).
XIII. What if the Employer Charges the Full Premium for an Assistance Eligible Individual During the Subsidized Premium Period and the Individual Pays the Full Premium?
A. For any period of coverage for which the individual was entitled to the premium reduction AND the full COBRA premium was paid, the employer must make a reimbursement payment to the individual for the excess amount, or provide credit to the individual for subsequent premium payments.
B. The employer can then request reimbursement from the Treasury for the premium reduction.
C. Unless the employer reasonably believes that the credit for excess payments will be used by the Assistance Eligible Individual within 180 days of the date on which the individual paid the full premium, then actual reimbursement must be made within 60 days of the full payment (the credit method cannot be used). If the employer reasonably believes that the credit will be used up within the 180 days but then such belief becomes no longer reasonable, then the reimbursement must be made within 60 days of the day that it becomes unreasonable for the employer to believe that the credit will be used up.
For further information, please contact Mary Ellen Schill, who prepared this outline.
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