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Greetings!
Outlined
below is a summary of the COBRA changes
that will go into effect on March
1, 2009 due to the American Recovery
and Reinvestment Act. We will keep
you posted on any updates as they
are received.
COBRA
Provisions in the American Recovery
& Reinvestment Act
Congress has passed
the American Recovery and Reinvestment
Act ("the Act"), and the
Act has been signed by President Obama.
This communication describes the provisions
in the Act that affect COBRA continuation
coverage and similar state continuation
coverage.
Applicability
and Effective Date
The COBRA changes affect both the
federal COBRA provisions and the Public
Health Service Act program that provides
similar extension benefits for public
programs. In addition, however, the
subsidy provisions apply to state
continuation coverage that is comparable
to federal COBRA. That would include
so-called "mini-COBRA" state
laws that cover groups below the 20
employee threshold for COBRA. To be
comparable, the state continuation
law must allow the individual to continue
substantially similar coverage as
was provided under the group health
plan at a monthly cost that is based
on a specified percentage of the group
health plan's cost of providing such
coverage. Reference to "COBRA"
throughout this memo will also refer
to the state programs that meet those
requirements.
The Act is effective
February 17, 2009, the day that President
Obama signed the bill. All of the
COBRA provisions that have a time
frame will date from that day. As
for calendar monthly billed programs,
the effective date is March 1, 2009.
New Subsidy for
COBRA Beneficiaries
The Act provides for a new subsidy
for certain COBRA beneficiaries. The
subsidy is 65% of the COBRA continuation
coverage premiums for eligible individuals
for up to 9 months. The COBRA beneficiary
will pay only 35% of the overall COBRA
premium for that period. The period
expires on the earlier of (i) nine
months, (ii) the date the individual
becomes eligible for major medical
group coverage or Medicare or (iii)
the end of the maximum required period
of continuation under COBRA. Further,
the beneficiary must notify the employer
in writing if they become eligible
for coverage under a major medical
group health plan or Medicare and
is subject to significant penalties
(110% of the subsidy amount) for failing
to do so.
An individual who does not receive
a subsidy that he/she believes appropriate
may appeal the plan's determination
to the Department of Labor for private
plans or to the Department of Health
and Human Services for public plans
covered under the Public Health Services
Act. The relevant agency must rule
on the appeal within 15 business days.
Individuals whose appeal is denied
may sue under ERISA.
Eligibility for
the Subsidy - Timing
The subsidy is available to individuals
(and their dependents) who were involuntarily
terminated from their employment and
became eligible for COBRA beginning
September 1, 2008 through December
31, 2009. Persons who elected prior
to the enactment of the Act (but on
or after September 1, 2008) will be
eligible to receive the subsidy prospectively
from the date of enactment through
the maximum nine-month period. Otherwise
eligible persons who did not elect
COBRA between September 1, 2008 and
the date of enactment will have the
opportunity to elect COBRA on a prospective
basis with the maximum duration of
the coverage dating from the date
that they could have first elected
COBRA. Employers or plans will have
to provide notice to these groups
of individuals. In addition, a group
health plan or insurer must refund
the individuals any COBRA premiums
that subsidy-eligible persons paid
on or after the date of enactment
in excess of 35% of the premium. This
may be in the form of a reimbursement
payment or credit against future premium
payments due.
Eligibility for
the Subsidy - Income Test
The subsidy is adjusted based on income.
Joint filers with $250,000 or more
of modified adjusted gross income
and all other filers with $125,000
or more of modified adjusted gross
income are not eligible for the full
subsidy. The subsidy is phased out
completely for persons with modified
adjusted gross incomes of $290,000
joint or $145,000 for other filers.
The subsidy is not considered income
as long as the beneficiary meets the
income tests. Excess amounts of subsidy
over the amount the person is entitled
to by income will be added to the
person's tax on the person's federal
tax return. The employer will not
have to be concerned about the taxable
effect on COBRA beneficiaries although
a COBRA beneficiary may request that
the employer not provide any subsidy.
Mechanics of the Premium Subsidy
The Act requires that the relevant
entity that is collecting the 35%
premium simply not collect the remaining
65% and, instead, obtain reimbursement
from the federal government. In cases
of a multiemployer plan, a group health
plan subject to federal COBRA and/or
a self-funded employer, the plan or
the employer that is collecting the
premium will recoup the subsidy amounts
through commensurate reductions in
payroll taxes. For insured plans not
subject to federal COBRA, where the
insurer is collecting the premium,
the insurance company will be entitled
to the reimbursement through a corresponding
credit to its own payroll taxes. In
cases where the payroll taxes are
not sufficient to cover the subsidy,
the additional amount will be provided
as a credit to the taxpayer as if
it was an overpayment of payroll taxes.
There are filings that payers receiving
the subsidy must make with the Secretary
of the Treasury.
Electing a Different
COBRA Option
An employer may allow a COBRA-subsidy
eligible individual to change his
or her health insurance coverage option
when making a COBRA election. The
new plan option must be made within
90 days of receipt of the COBRA election
notice, must have the same or lower
premiums and must be available to
non-COBRA active employees under the
plan.
Notice Requirements
and Election Period
Under the Act employers must provide
modified election notices or provide
separate supplemental notices to all
persons who became entitled to elect
COBRA continuation coverage during
the period beginning on September
1, 2008 and ending on December 31,
2009.
The new forms would
notify the individual about the subsidy
and, if applicable, the right to change
to different benefits options. The
Department of Labor, Treasury and
Health and Human Services are supposed
to work together to provide a model
notice within 30 days of enactment.
Notices are required
to be sent to subsidy-eligible persons
who became qualified beneficiaries
before the date of enactment within
60 days of enactment. (The Act does
not affect the timing of notices sent
to individuals who become qualified
beneficiaries on or after the date
of enactment.) The election period
for those beneficiaries who became
eligible before the date of enactment
will begin on the date of enactment
and end 60 days after the date the
plan administrator provides the required
notice.
Failure to provide
the notices would be a COBRA violation
and subject to the standard COBRA
penalties of up to $110 a day under
ERISA. Additionally, there could be
adverse tax consequences under the
Internal Revenue Code, which can impose
excise taxes of $100 per day per notice
on the plan administrator.
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