The Department of Labor (DOL) has published model notices of temporary premium reductions in COBRA payments mandated by the American Recovery and Reinvestment Act of 2009 (ARRA) (the stimulus bill), that employers are required to send to employees whose loss of coverage occurred between September 1, 2008 and December 31, 2009. Eligible individuals should receive a notice by April 18 informing them of this opportunity. The stimulus package reduces the premium for COBRA coverage for eligible individuals to 35 percent of the full COBRA premiums for up to nine months. The employing company (or other responsible entity) may recover the remaining 65 percent of the premium by taking the subsidy amount as a credit on its quarterly employment tax return.
The stimulus bill also provides that a special 60-day election period must be offered to former employees whose loss of coverage occurred between September 1, 2008 and February 17, 2009 who originally declined COBRA continuation coverage as well as to those who elected and subsequently terminated COBRA coverage.
Those who had health insurance coverage provided by their former employer, who were involuntarily laid off after September 1, 2008 and through December 31, 2009, are eligible for the payment reduction for a nine-month period.
In addition, people who were involuntary terminated on or after September 1, 2008 and who did not elect COBRA when it was first offered or who did elect COBRA but are no longer enrolled (for example, those who dropped COBRA coverage because they were unable to continue paying the premium) have a second opportunity to sign up.
Persons who are eligible for Medicare or other group health coverage, such as through a new employer's plan or a spouse's plan, are not eligible for the subsidized COBRA premiums.
If recipients of a COBRA subsidy earn more than $125,000 for the year (or $250,000 for married couples filing jointly), they may have to repay all or part of the premium reduction through an increase in their income-tax liability for the year.
Former employees must have elected health coverage before being laid off, but, if they have had a baby, or adopted a child since being laid off, they would be considered as qualified beneficiaries and be entitled to health benefits.
If there is no longer a health plan, as when a company has shut down, there is often no COBRA coverage available.
Individuals who are denied the premium reduction may appeal.
Employer Responsibility – Initial Payment
Employers maintaining fully insured or self-insured group health plans subject to COBRA, will bear the initial cost of the subsidy and then obtain a reimbursement through a reduction in their Quarterly Federal Tax Return (Form 941).
The IRS Web site says that, "Employers should use the updated Form 941, Employer's Quarterly Federal Tax Return, to report their COBRA premium assistance payments. The Form 941 Instructions explain how to complete lines 12a and 12b, which address the COBRA premium assistance payments."
In the case of a group health plan that is a "multi-employer plan," the plan - not the employer - will be entitled to reimbursement for the cost of the premium subsidy.
Employer Responsibility – Notices
ARRA mandates that by April 18, 2009, group health plan administrators provide notice of the reduction in premium to current and former participants and beneficiaries who lost or lose coverage between September 1, 2008 and December. 31, 2009 via the plan's COBRA election notice process. This notice includes information on ARRA's additional election opportunity. Plan administrators may choose to revise their current notices or use the Model Notices created by the DOL.
Notices must include the following information, according to the Labor Department's Web site:
- The forms necessary for establishing eligibility for the premium reduction;
- Contact information for the plan administrator or other person maintaining relevant information in connection with the premium reduction;
- A description of the second election period (if applicable to the individual);
- A description of the requirement that the Assistance Eligible Individual notify the plan when he/she becomes eligible for coverage under another group health plan or Medicare and the penalty for failing to do so;
- A description of the right to receive the premium reduction and the conditions for entitlement; and
- If offered by the employer, a description of the option to enroll in a different coverage option available under the plan.
Action Steps for Employers
The stimulus bill's COBRA provisions are effective immediately. Among other complex issues that employers will have to cope with are the fact that the duration of the eligible period will vary from one individual to another especially as it affects those who are eligible for a second election period of 60 days. According to Stacy H. Barrow, counsel with K&L Gates LLP, in its Employee Benefits Practice Group, and April L. Boyer, partner with K&L Gates LLP in its Labor & Employment Practice, Group, writing for hreonline.com, employers are recommended to take the following specific actions:
- Identify individuals who have had a COBRA qualifying event on or after September 1, 2008, the circumstances surrounding such event and whether any are currently enrolled in COBRA;
- Consider permitting high-earning employees to permanently waive the subsidy;
- Review severance policies and individual severance agreements providing for COBRA coverage to determine if any special provisions apply (such as a subsidy not generally provided to other group health plan participants);
- Develop processes to implement the premium subsidy by May 1, 2009 as required by the ARRA and determine how to apply any excess COBRA premiums paid since March 1, 2009;
- Closely track the maximum COBRA duration as well as the maximum premium subsidy period, as the two will likely not match;
- Coordinate with payroll and/or COBRA vendors to determine their level of preparedness and the extent to which they can assist with tracking and notice requirements;
- Review any stop-loss policy associated with a self-insured group health plan to confirm that eligible individuals will be covered.
For more information, visit the Department of Labor's COBRA Assistance under ARRA page.