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COBRA PREMIUM ASSISTANCE UNDER THE
AMERICAN RECOVERY AND
REINVESTMENT ACT OF 2009
In an effort
to stimulate the U.S. economy, the American Recovery and Reinvestment
Act of 2009 (the "Act") was signed into law on February 17,
2009. The Act includes provisions that expand the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") by
providing federal assistance for the payment of COBRA continuation
coverage for certain employees and covered family members.
Any employer
subject to COBRA that sponsors a group health plan for its employees,
and has terminated or laid off an employee on or after September 1,
2008, will be affected by the Act and needs to take immediate action
to comply with these new provisions which become effective March 1, 2009.
WHAT COBRA
PREMIUM ASSISTANCE IS PROVIDED?
Under the Act,
if an eligible individual is involuntarily terminated from
employment (for reasons other than gross misconduct) between
September 1, 2008 and December 31, 2009, and does not have income in
excess of statutory limits, the individual may elect COBRA coverage
and will be responsible for paying only 35% of the applicable COBRA
premium. The employer pays the remaining 65% of the
premium. The Employer can then recoup its 65% share from the
federal government.
In addition to
the COBRA premium assistance, an employer may also choose to allow
such involuntarily terminated individuals to elect a
different, lower cost plan option, if available, upon election of
COBRA continuation coverage.
HOW LONG DOES
THE COBRA PREMIUM ASSISTANCE LAST?
Generally, the
COBRA premium assistance is available for a maximum of 9
months. Additionally, the COBRA premium assistance will cease
following the date an eligible individual becomes eligible for:
(1) coverage under any other group health plan (other than one
consisting only of dental, vision, counseling or referral services),
(2) coverage under a health flexible spending account plan, (3)
coverage of treatment at certain employer on-site facilities, or (4)
coverage under Medicare or Medicaid.
WHO IS
ELIGIBLE TO RECEIVE COBRA PREMIUM ASSISTANCE?
To be eligible
for the COBRA premium assistance, an individual must be involuntarily
terminated, or must have been involuntarily terminated, from his
or her employer during the period starting September 1, 2008 and
ending on December 31, 2009, and otherwise must be eligible to elect
COBRA at termination. Qualifying dependents of involuntarily
terminated employees are also be eligible for COBRA premium
assistance.
However,
individuals with an annual adjusted gross income exceeding $145,000
per year, and joint filers with income exceeding $290,000 per year,
are not eligible for the COBRA premium assistance. Also, COBRA
premium assistance is phased out starting at $125,000 for
individuals, and $250,000 for joint filers. Individuals who
receive COBRA premium assistance during a year in which they exceed
these income limits must repay the assistance. Such repayments
will be captured on the individual's income tax return.
SPECIAL
ELECTION PERIOD FOR COBRA PREMIUM ASSISTANCE.
Congress
realizes that many individuals who were recently terminated may have
declined COBRA coverage because they could not afford it.
Therefore, the Act includes a special election period for any
individuals who were involuntary terminated from employment on
or after September 1, 2008 and who failed to initially elect
COBRA. Employers must offer these individuals a 60 day period
to elect COBRA and receive the premium assistance beginning on the
date they receive notice of their rights to make the second
election. Notices of the special election period must be
distributed to employees no later than April 18, 2009 (60 days after
enactment of the Act).
WHAT ABOUT
INDIVIDUALS WHO HAVE ALREADY ELECTED COBRA COVERAGE AND ARE PAYING
FULL COBRA PREMIUMS?
Individuals
who were involuntarily terminated and elected COBRA on or
after September 1, 2008, are entitled to the COBRA premium assistance
and, must receive a notice of their right to COBRA premium
assistance.
For any such
individual who is paying more than 35% of the COBRA premium, the
employer shall reimburse the individual, or otherwise provide a
credit towards future COBRA premium payments, in the amount of any
excess payment.
The Act
requires employers to modify their existing COBRA notices, or provide
separate notices to all individuals who become eligible to elect
COBRA coverage between September 1, 2008 and December 31, 2009.
Such notices must include the following:
- Notification of the availability of the COBRA premium
assistance;
- Notification of the option to enroll in different health
care coverage offered by the employer, if any;
- Description of the forms necessary for establishing
eligibility for the COBRA premium assistance;
- The name, address, and telephone number necessary to
contact the plan administrator and any other person maintaining
the relevant information in connection with the COBRA premium
assistance;
- A description of the special election period;
- A description of the individual's obligation to notify
the plan if they no longer qualify for the premium assistance;
and
- A description, displayed in a prominent manner, of the
individual's right to a reduced premium and any conditions on
entitlement to the reduced premium.
The Act requires the Department of
Labor, the IRS and the Department of Health and Human Services to
work together to develop and issue a model notice, and we anticipate
such notice will be available within the next 30 days.
HOW DOES AN
EMPLOYER RECEIVE REIMBURSEMENT FROM THE FEDERAL GOVERNMENT?
An employer (and in some instances, an
insurer) is entitled to apply the amount of premium assistance it
pays as an offset against its payroll taxes. To claim this
offset, the employer must file a report with Internal Revenue Service
("IRS") that includes the following:
- Attestation of involuntary termination of employment for
each covered employee;
- A report of the amount of payroll taxes offset for the
applicable payroll tax reporting period and the estimated offset
of payroll taxes for the subsequent period; and
- A report containing the tax identification numbers
of all covered employees, the amount of the subsidy reimbursed
to each employee and covered family member, and a designation
with respect to each employee as to whether the subsidy
reimbursement is for coverage for one individual or two or more.
If the premium assistance paid by the
employer exceeds the employer's payroll taxes, the employer will be
entitled to a refund from the government.
WHAT SHOULD EMPLOYERS DO NOW?
Employers need to immediately address
the changes necessary to accommodate these new COBRA rules. In
general, employer and/or plan administrators should do the following:
- Identify involuntarily terminated individuals, and their
eligible dependents, who were eligible for COBRA on or after
September 1, 2008.
- Revise and update all COBRA communications, including
creating a notice for those terminated employees who are
immediately entitled to the special enrollment period discussed
above.
- Notify eligible individuals no later than April 18, 2009
of their special election period and of the availability of the
COBRA premium assistance.
- Determine whether to allow the former employee to switch
to alternative health coverage for COBRA purposes.
- Coordinate with your payroll and systems staff
personnel/provider to revise procedures for (1) paying the
employers 65% share of the COBRA premiums, (2) revising premium
statement to reflect new premium amounts, (3) obtaining
reimbursement of employer paid amounts from the federal
government, (4) determining and crediting any COBRA premium
overpayments for those individuals who previously elected COBRA
on or after September 1, 2008 and are currently paying the full
premium amount, and (5) ending the COBRA premium assistance when
an individual is no longer eligible and reinstating the 100%
COBRA premium charge if the individual continues to be eligible
for COBRA coverage after the COBRA premium assistance period.
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For further
information about the content of this Benefits Law Update, please
contact Edward
C. Hammond, Editor, at 248-988-1821. To find out
more about Clark Hill and our Employee Benefits team, visit clarkhill.com
or call 800.949.3124
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