ErisaALERT 2009-01 COBRA Subsidy-Erisa Diagnostics, Inc

February 2009

COBRA Subsidy

DOL Cobra site

The American Recovery and Reinvestment Act (ARRA) was signed into law on February 17^th. ARRA contained provisions which immediately impact plan sponsors subject to COBRA. This ErisaALERT touches on a few of the immediate practical aspects of the new law; as with most laws, the devil is in the details and we don’t have all the details yet.

Keeping it simple to start

Key provisions related to COBRA:

Provides a 9 month COBRA premium subsidy for an “assistance eligible individual”,
An “assistance eligible individual” includes a qualified beneficiary who was involuntarily terminated during the period from September 1, 2008 through December 31, 2009 and who doesn’t exceed specified income limitations,
A special election notice must be distributed to all individual who became qualified beneficiaries during the time period mentioned above, and
The subsidy is effective March 1, 2009!

What it means to Plan Sponsors

Let’s take a closer look at some of the specific requirements as we know them today and their practical implications.

Effective Date

The effective date is March 1, 2009. The statute and Conference Agreement provides specific rules relating to providing credits in the case of an assistance eligible individual who pays 100% of the COBRA premium during the first two months following enactment.

Bottom line: yes, the law is effective March 1, 2009 but if you can’t jump through the necessary hoops you have a two month period to get the processes in place but that will mean developing a process to “credit” assistance eligible individuals who paid 100% rather than 35%.

The Notice

The special election notice must be distributed within 60 days of enactment, i.e., April 19, 2009. The requirements of the special election notice can be met by amending existing notices or creating a separate notice. A model notice is supposed to be provided by the government by March 19, 2009. The statute provides the content requirements of the notice so you don’t have to wait for the model notice. The election period begins February 17, 2009 and ends 60 days after the special election notice is provided.

Bottom line: Plan Sponsors must

develop a notice or wait for the government’s model notice,
identify assistance eligible individuals including beneficiaries of assistance eligible individuals, and
notify the assistance eligible individuals and/or beneficiaries of assistance eligible individuals.

Assistance eligible individuals

Assistance eligible individuals include a qualified beneficiary who was involuntarily terminated during the period from September 1, 2008 through December 31, 2009. The statute provides limits for high income individuals ($125,000 or $250,000 in the case of a joint return). High income individuals can opt out of the subsidy.

Bottom line: The Plan Sponsor must:

offer an additional COBRA election opportunity for group health coverage to assistance eligible individuals
provide the special enrollment notice to assistance eligible individuals who elected COBRA as well as to those assistance eligible individuals who did not elect COBRA

The coverage

The COBRA subsidy applies to group health plans. The assistance eligible individual has 60 days from the date of the special election notice to elect the coverage. If elected, coverage begins with the first coverage period after the date of enactment, which for most Plan Sponsors is March, 2009. The coverage period ends on the date COBRA coverage ends had it been elected when first eligible. However, the subsidy lasts for 9 months. Plan sponsors have the option of allowing assistance eligible individuals to elect coverage under a different plan than was offered at the time the individual was enrolled at the time the qualifying event occurred; if this is permitted, the assistance eligible individual has 90 days after the date of the special election notice to elect such coverage

Bottom line: Plan Sponsors must decide if they want to offer different coverage.

The Subsidy

An assistance eligible individual is entitled to a 65% subsidy of the COBRA premium. If the Plan Sponsor is already subsidizing the COBRA premium, it’s not clear how the subsidy will affect the COBRA premium, i.e., the assistance eligible individual pays 35% of the amount not paid by the Plan Sponsor or the Plan Sponsor has the ability to restructure their existing payment. The subsidy is in effect for no longer than nine months and will end earlier if the assistance eligible individual becomes eligible:

for any other group health plan (other than coverage consisting of only dental, vision, counseling or referral services);
for coverage under a flexible spending arrangement or coverage that is furnished in a on-site medical facility maintained by the employer (subject to limitations); or
is eligible for Medicare.

The assistance eligible individual must notify the group health plan of other coverage or be subject to a penalty of 110% of the premium reduction.

The statue provides that “the person to whom premiums are payable under COBRA continuation coverage shall be reimbursed” and goes on to define “person entitled to reimbursement” to be the plan in the case of a multiemployer plan; the employer maintaining the plan in the case of coverage some or all of which is not provided by insurance; and the insurance company in the case of coverage not previously described!

Bottom line:

The mechanics of the subsidy reimbursement are lacking. The statute seems to say that in the case of insured health coverage, the reimbursement is made to the insurance company which means that the Plan Sponsor’s only involvement will be in identifying assistance eligible individuals and providing that information to their COBRA administrators (whether internal or external) and to the insurance company. Of course, the Plan Sponsor must make sure the notices are distributed. This sounds too easy!. See reporting requirements below. We believe that the insurance company reference is to the individual state “mini-med” programs

Plan Sponsors with self-insured health plans will have to “front” the COBRA premium and the follow the rules for reimbursement, i.e., a reduction in payroll taxes. Sounds like a lot of procedures with multiple checks for accuracy will have to be developed involving benefits personnel, systems, payroll and finance.

Plan Sponsors with multiemployer plans will conceivably pay the 65% subsidy to the “plan” and adjust their payroll taxes accordingly.

Reporting requirements

The statute contains a section titled “Reporting” which states that any person (see Subsidy section above) entitled to reimbursement shall submit reports as the Secretary may require including:

an attestation of involuntary termination of employment for each covered employee who is an assistance eligible individual
a report of the amount of payroll taxes offset for the reporting period and estimated offsets for subsequent reporting periods
a report containing the TINs of all covered employees, the amount of the subsidy reimbursed and a designation with respect to each covered employee as to whether the subsidy reimbursement is for coverage of one individual or 2 or more

What should you do now?

You have probably already started doing many of these items:

contact your COBRA administrator and ask them what they are doing
identify your assistance eligible individuals
draft or review the special COBRA election
update existing COBRA communication material
contact your insurance carriers if you are insured and ask them what they are doing
develop a communication timetable; assign responsibilities and monitor
work with payroll and systems to change internal processes (crediting overpayments, ceasing the subsidy after 9 months, develop reports as required by the government)

Note: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plans. For more information on this ErisaALERT, contact us by phone at 610-524-5351 and ask for Mary Andersen or 973-994-7539 and ask for Theresa Borzelli.

ErisaALERT 2009-1

COBRA subsidy