COBRA -Challenges from the Changes in the American Rescue Plan Act and More – New Free Webinar

Attorney Howard Lapin and I conductied a new free webinar reviewing the challenges in offering COBRA as a result of the changes in the American Rescue Plan Act and the extensions of the COBRA deadlines under the National Emergency on March 25 at 1 PM CDT.

The new COBRA Premium Assistance has to be offered on April 1, 2021. Will you be ready?

The Webinar is 60 minutes in length.

The following questions were covered:

-Who is eligible for the new COBRA Premium Assistance under the American Rescue Act?

-What COBRA Premium Assistance has to be provided?

-Will employers have to give former employees the opportunity to either enroll or reenroll in COBRA?

-When will the changes be effective?

-What notices have to be provided and when?

-How does the new COBRA Premium Assistance coordinate with the extension of the COBRA deadlines under the National Emergency?

This Webinar  includes a substantial question and answer period.

COBRA PREMIUM ASSISTANCE SUBSIDY EXTENDED AGAIN

On March 2, 2010 the President signed the Temporary Extension Act of 2010 (H.R. 4691).  Section 3 of this act revises the COBRA premium assistance subsidy under the American Recovery and Reinvestment Act of 2009 (ARRA).

The full text of section 3 of HR 4691 can be found at:

http://www.dol.gov/ebsa/pdf/HR4691.pdf

Under the revisions:

• Extension of Eligibility Period for Involuntary Terminations.  Employees who experience an involuntary termination of employment on or before March 31, 2010 and meet all other requirements will now be eligible for the COBRA premium assistance subsidy.

• Addition of Qualifying Events That Are Reductions of Hours. Employees who experience a reduction of hours on or before September 1, 2008 and are involuntarily terminated on or after March 2, 2010, but before March 31, 2010, may now be eligible for the COBRA premium assistance subsidy.

• New Penalty Provisions. The employer/plan sponsor penalties and remedies that apply to the COBRA Notification requirement now appear to apply to the ARRA Notification requirements.

• Protection for Employers Making Involuntary Termination Determinations. The Internal Revenue Service (IRS) will honor any employer determination of an involuntary termination if certain conditions are met.

What does that mean for employers?

Current ARRA Notifications must be updated with the new law deadlines and also include the new reduction of hours eligibility information.

Notice explaining the new law must be mailed to the following individuals within the next 60 days:

• Any COBRA eligible employee whose qualifying event was a reduction of hours on or after October 1, 2008 and has incurred an involuntary termination on or after March 2, 2010.  These individuals would still be within the 18 months COBRA coverage period as measured from the date of his or her reduction of hours. Note: It appears that an individual who elects COBRA coverage after a reduction of hours and continues it through the date of a subsequent termination of employment will not be entitled to any period of subsidy.

• Any COBRA participant whose COBRA notice was mailed out between February 28, 2010 and March 3, 2010.

While the reduction of hours clarification was not unexpected, please note that this provision does not extend the time the person must be provided COBRA coverage and only applies to those employees who terminate employment after March 2, 2010.

So basically, if you have an employee who had a reduction of hours on October 5, 2008, lost health coverage effective October 31, 2008, and terminated employment on March 2, 2010, this employee would be able to elect COBRA coverage for the month of March, 2010 even if he or she declined it the first time and may be eligible for the COBRA premium assistance subsidy.

Their COBRA coverage would be effective March 1, 2010 and end on March 31, 2010 (the end of the original 18 months of COBRA coverage eligibility due to the reduction of hours) and the individual therefore would not be eligible for payment of any medical claims between November 1, 2008 and February 28, 2010.

Another second bite at the apple (New Special Enrollment Right)

For those employees who are involuntarily terminated between March 2, 2010 and March 31, 2010 and incurred a reduction of hours anytime on or after September 1, 2008, they will now have a second chance to elect COBRA coverage if they failed to elect COBRA at the time of the reduction of hours or elected COBRA and then stopped.  Such election period shall be the latest of:

• 60 days after enactment (March 2, 2010) or May 1, 2010;

• 30 days after receiving a notice; or

• the end of the 30 day grace period for paying COBRA premiums.

Employer’s Determination of Involuntary Termination

The IRS will now adopt and honor an employer’s determination of an employee’s involuntary termination so long as (1) the employer bases its determination “on a reasonable interpretation” of ARRA and related administrative guidance; and (2) “the employer maintains supporting documentation of the determination, including an attestation by the employer of the involuntary termination with respect to the covered employee.”

New Penalties

An individual, the Department of Labor (DOL) or the Department of Health and Human Services (HHS) may bring suit to enforce a determination made by DOL or HHS of involuntary termination.  DOL or HHS can penalize plan sponsors or insurers who fail to comply with the determination at a rate of not more than $110 per day for each failure (after a 10 day grace period after the plan sponsor or insurer receives the decision.)  These penalties are in addition to existing penalties’ for failure to comply with COBRA under ERISA and the Code

Special Action Required from Employers/Plan Sponsors

In the past, employers may not have notified its COBRA service provider when a person who lost coverage due to a reduction of hours later terminated employment.  Going forward, the employer must notify your COBRA service provider of anyone who terminates employment after March 2, 2010, as they should be notified that they may have a special enrollment right to elect COBRA and receive the COBRA premium assistance subsidy.

It should also be noted that HR 4691 does not extend any additional time for those who currently are receiving the COBRA premium assistance subsidy.  This remains 15 months for now.

However, there are still more changes likely to be coming in the near future as well as questions regarding the application of this recent amendment.

COBRA Subsidy Extension Becomes Law

The Congress passed legislation (H.R. 3326) extending the original federal COBRA subsidy created by the American Recovery and Reinvestment Act of 2009 (ARRA) which President Obama signed  into law on December 19, 2009.

Background

Under the ARRA, the federal government pays sixty-five (65%) percent of COBRA premiums for up to nine (9) months for employees who were involuntarily terminated between September 1, 2008, and December 31, 2009. This subsidy was set to expire at the end of this year and has already started to end for individuals who have been receiving this subsidy since March.

New Extension

Assistance-eligible individuals (“AEIs”) involuntarily terminated from employment on or before February 28, 2010, can now receive the subsidy.  The subsidy will remain at sixty-five 65% percent of the premium, but the maximum subsidy period will expand from nine (9) months to fifteen (15) months.  Only those individuals losing health coverage due to involuntary employment termination will continue to qualify for the COBRA subsidy. The following is a summary of the new law:

New Extended Eligibility Period:  AEIs involuntary terminated on or before February 28, 2010 will now be eligible for the subsidy, instead of December 31, 2009.  The new law eliminates the requirement that COBRA coverage must commence before COBRA subsidy sunset date (December 31, 2009 before the new law is effective and February 28, 2010, after).  Eligibility for the COBRA subsidy will only be conditioned on a qualifying event occurring on or before February 28, 2010, without regard to when the COBRA coverage period begins.  This means that AEIs involuntarily terminated on or before December 31, 2009, who become eligible for COBRA coverage after December 31, 2009 will now be COBRA subsidy eligible.  This new law reverses earlier guidance (IRS Notice 2009-27, Q/A-10).

Longer Subsidy Period: The maximum COBRA subsidy period has been extended from nine (9) months to fifteen (15) months.   Please remember that the new law does not change the maximum COBRA period that an individual is entitled to under COBRA or state continuation.

Notices For Those Who Exhausted Their COBRA Subsidy: Any AEI who exhausted their original nine (9) month COBRA subsidy period before the new law takes effect can receive the COBRA subsidy for another six (6) months if they remain an AEI and their maximum COBRA period has not ended.   AEIs who either dropped their COBRA coverage or kept their COBRA coverage but paid the full unsubsidized premiums must be notified that they may pay reduced premiums for retroactive coverage or receive credit for or reimbursement of overpayment.  These notices must be provided within sixty (60) days of the AEI dropping or first overpaying for COBRA.   Such AEI must pay for coverage no later than sixty (60) days after enactment (December 19, 2009) or February 17, 2010 (or if later, thirty (30) days after the notice was provided).

Other Notice Requirements: Anyone eligible for the COBRA subsidy or terminated from employment (voluntarily or not) on or after October 31, 2009 must be provided with a notice describing the revised program within sixty (60) days of the law’s enactment (December 19, 2009) or February 17, 2010 or, if later, the usual deadline for furnishing materials to individuals experiencing a COBRA qualifying event.

IRS Releases Further Guidance on the COBRA Premium Assistance Subsidy

On March 31, 2009, the Internal Revenue Service (“IRS”) released Notice 2009-27 providing extensive guidance on a number of different areas regarding the COBRA assistance premium subsidy under the American Recovery and Reinvestment Act of 2009 (“ARRA”).  The Notice contains a brief background explanation with fifty-eight (58) questions and answers.  In the Notice, the IRS addresses these following areas:

• What is an involuntary termination?

• Who is an assistance eligible individual?

• How is the COBRA premium assistance subsidy determined?

• What coverages are eligible for the COBRA premium assistance subsidy?

• When does the COBRA premium assistance subsidy begin to apply?

• When does the COBRA premium assistance subsidy end?

• How does the recapture of the COBRA premium assistance subsidy work?

• How does the special enrollment right under ARRA work?

• Who collects the COBRA premium assistance subsidy for those insured plans that are subject to state continuation coverage?

The following explanation will review the important new information provided in each area specified above.

What is an involuntary termination?

Events that would be considered an involuntary termination: Any event will qualify as an involuntary termination if it causes an individual to lose his or her job as a result of “an independent exercise of the unilateral authority of the employer.”  Such termination must not be the result of an employee’s implicit or explicit request. The determination of whether a termination is involuntary is based on all facts and circumstances.  The following events will be considered to be an involuntary termination:

• An employer’s failure to renew an employee’s contract for services at the end of the contract term;

• An employee’s termination for good reason or cause;

• An employee’s layoff, furlough or other suspensions of employment resulting in a loss of health coverage;

• An employee’s termination resulting from his or her absence from work due to illness or disability;

• An employee’s reduction of hours followed by his or her voluntary termination;

• An employee’s retirement if he or she left with the understanding he or she would be terminated;

• An employee’s voluntary termination, if he or she had reasonable knowledge he or she would be terminated;

• A lockout initiated by the employer;

• An employee’s termination in return for a severance package where the employer indicates after the offer period a number of employees will be terminated; and

• An employee’s resignation as a result of a material change in the geographic location of employment for him or her.

Events that will not be considered an involuntary termination: The following events will not be considered involuntary:

• Any events that cause a loss in coverage and eligibility for COBRA but does not result in an employee’s termination of employment.  These events include a divorce or a dependent child ceasing to be a dependent child or the death of an employee or absence from work due to illness or disability.

• Work stoppage resulting from a strike initiated by employees or their representatives.

• An employee’s reduction of hours without a voluntary termination of employment.

Who is an assistance eligible individual?

An individual will be considered assistance eligible individual if he or she is a qualified beneficiary under COBRA as a result of an involuntary termination that occurred on or after September 1, 2008 and on or before December 31, 2009 and he or she elects COBRA coverage.

An individual will be not considered an assistance eligible individual if:

• the involuntary termination occurs before September 1, 2008 or after December 31, 2009, even if the loss of coverage occurs on or after September 1, 2008; and

• the individual’s involuntary termination occurs no later than December 31, 2009, but the loss of coverage occurs after December 31, 2009.

When does a loss of coverage occur for the purpose of the COBRA premium assistance subsidy if an employer provides health coverage to an involuntarily terminated employee on the same terms as for similarly situated active employees after termination?  It will depend on if the employer treats such coverage as deferring the loss of coverage or as part of its obligation to provide COBRA coverage.  If the employer treats such coverage as deferring the loss of coverage, then for purposes of the COBRA premium subsidy, the loss of coverage (and eligibility for Federal COBRA) will be considered to occur when such coverage ends.  If the employer treats such coverage as part of its obligation to provide COBRA coverage, then the loss of coverage is considered when such coverage is first provided.

For an individual to be considered assistance eligible individual, he or she must be covered by a plan that is subject to COBRA coverage requirements under ARRA.

If an individual qualifies, he or she can be an assistance eligible individual more than once.  The individual is entitled to nine (9) months of the COBRA premium assistance subsidy at each occurrence.

How is the COBRA premium assistance subsidy determined?

The COBRA premium assistance subsidy is based on the amount of the COBRA premium that an individual is required to pay.  If the premium charged to the assistance eligible individual is less than the maximum COBRA premium, such amount is used to determine the assistance eligible individual’s 35 percent share.  In determining the amount paid by the assistance eligible individual, payments made on behalf of the individual by another third party (other than the employer) are taken into account and taken into consideration as amounts paid by such individual.  Such other third parties can include a parent, guardian, State agency or charity.

The premium assistance subsidy only applies to the portions of the premium attributable to COBRA coverage for those who are qualified beneficiaries.  A qualified beneficiary will include a spouse or dependent child who was covered at the time of qualified event or a dependent child born to or adopted by the covered employee during the COBRA period.  Any spouse or child added to coverage during the COBRA period will not be considered to a qualified beneficiary.  Lastly, a domestic partner will not be considered a qualified beneficiary.

In determining what portion of the COBRA premium is eligible for the subsidy, the amounts paid for coverage for one or more individuals who are assistance eligible individuals will be allocated first and then the cost of covering non-assistance eligible individuals.  If the cost of covering a non-assistance eligible individual does not add to the cost of covering the assistance individuals, then the cost of covering the non-assistance eligible will be zero and the subsidy will apply to the entire COBRA premium.  If the cost of coverage a non-assistance eligible individual adds to the cost of covering the assistance eligible individual, this incremental cost is ineligible for the subsidy.

If the assistance eligible individual changes coverage during his COBRA period, the COBRA premium assistance subsidy will apply to the new premium, even if higher than the original coverage.

What coverages are eligible for the COBRA premium assistance subsidy?

The COBRA premium assistance subsidy applies to any COBRA coverage of any group health plan, except for health flexible spending accounts.  The term group health plan includes vision-only or dental-only plans and “mini-med plans.”  The subsidy is not available to any coverages offered by an employer for non-health benefits not subject to COBRA coverage, such as group term life insurance benefits.

Retiree health coverage may be treated as COBRA coverage eligible for the subsidy if it does not differ from the coverage provided to active employees.  It does not matter that the cost charged to retirees is greater than the amount charged to active employees.

When does the COBRA premium assistance subsidy begin to apply?

The COBRA premium assistance subsidy applies to the first period of coverage beginning on or after February 17, 2009.  This first period of coverage can be a monthly or shorter period, depending on the period with respect to which premiums are charged by the plan.

When does the COBRA premium assistance subsidy end?

The COBRA premium assistance subsidy will apply until the earliest to occur:

• the first day the assistance eligible individual becomes eligible for other group health care coverage or Medicare,

• nine months after the first day of the first month for which the subsidy applies, or

• the date the individual ceases to be eligible for COBRA coverage.

For someone who eligible for other coverage, such eligibility does not take effect for the purposes of ending the period of COBRA premium assistance subsidy until the first date that coverage could have taken effect.  So if a plan imposes a waiting period, eligibility would not take effect until the end of the waiting period and when coverage would have actually begun.

If a retired employee is offered retiree coverage, such coverage can make such individual ineligible for the subsidy if such coverage is offered under a different group health plan than one offered under COBRA.

An employer is not required to refund the COBRA premium assistance subsidy if the individual fails to provide notice that he or she was covered under another group health plan unless the employer otherwise knew of the eligibility for such coverage.

How does the recapture of the COBRA premium assistance subsidy work?

A plan cannot refuse to provide the COBRA premium assistance subsidy to anyone even if his or her income will be high enough so that the recapture of the subsidy will apply.  A plan can only not apply the subsidy after the individual has elected to permanently waive the subsidy or when the period of the subsidy has ended.

An assistance eligible individual may waive the COBRA premium assistance subsidy by providing the plan with a signed and dated notification (including a reference to a “permanent waiver”).  Once an assistance eligible individual makes such a waiver, he or she may not later reverse the election and may not receive the premium reduction for any future period of COBRA coverage in 2009 or 2010.

How does the special enrollment right under ARRA work?

For any employee who as involuntarily terminated during the period from September 1, 2008, through February 17, 2009, any qualified beneficiary who does not have an election for COBRA coverage on February 17, 2009 has a special enrollment right under ARRA to elect COBRA coverage again.  Such new COBRA coverage begins with the first period of COBRA coverage beginning on or after February 17, 2009.  If a plan bases COBRA coverage on calendar months, the individual’s first period of coverage beginning on or after February 17, 2009 is March 1, 2009 and the COBRA premium assistance subsidy applies for premiums for COBRA coverage beginning on March 1.  This does not change even if the plan otherwise requires individuals who lose coverage before the last day of the month and wish to enroll in COBRA coverage to pay a prorata portion for the first partial month of coverage.

For plans that require that COBRA coverage be paid based on a monthly period from the date of loss of coverage, the first period of coverage is the monthly period corresponding to the day after the loss to the day of the following month corresponding to the day of the loss of coverage.  If an individual’s last day of coverage is October 3, 2008, the period of coverage runs from the fourth of the month to the third of the following month and the first period of coverage on or after February 17, 2009 is the period March 4 through April 3, 2009.

This special enrollment right under ARRA also applies to those individuals who are eligible for the COBRA premium assistance subsidy but still has an open COBRA coverage period.  This means such individual have a choice.  They can elect COBRA under the original election period and have coverage retroactive or instead elect and pay for COBRA coverage under the special election period under ARRA and have COBRA coverage apply for coverage periods on or after February 17, 2009.

The special enrollment period under ARRA only applies to those plans subject to federal COBRA and does not extend to state continuation coverage.  Each state has to make a decision whether to apply this special election period under ARRA.

If at the time of the special enrollment period under ARRA, a special enrollment right under HIPAA under an individual’s spouse’s plan has expired and the individual does not have a right to enroll in that plan until the next open enrollment, such individual will not be treated as being eligible for other group coverage until the next open enrollment.

The first premium payment for coverage under the special enrollment period under ARRA is due no earlier than 45 days after the date on which the election of federal COBRA is made.

Who collects the COBRA premium assistance subsidy for those insured plans that are subject to state continuation coverage?

The only person entitled to be reimbursed for COBRA premium assistance subsidy is the insurer providing the coverage under the group health plan.

Are there any other areas discussed in the notice?

In the background discussion of the notice, the IRS makes the following comments:

• The COBRA premium assistance subsidy will be treated as an employee contribution to the group health plan.

• Any amount of the COBRA premium assistance subsidy recaptured because of an individual’s income will be treated as increase in the individual’s Federal income tax liability.

STIMULUS PACKAGE CONTAINS COBRA SUBSIDY

On February 17, 2009 the President signed into law the American Recovery and Reinvestment Act of 2009.  This law may provide certain individuals you with the opportunity to receive (1) assistance in paying for their COBRA premiums and/or (2) a second chance for electing COBRA coverage even if the individual is not eligible to receive assistance in paying the COBRA premium.  If an individual is eligible for assistance in paying his or her COBRA premium, he or she may only have to pay up to 35% of the monthly cost of his or her premium for group health coverage under COBRA or state continuation coverage.

Who is Eligible for the COBRA Premium Assistance Subsidy?

An individual is eligible for the COBRA Premium Assistance Subsidy if you meet the following conditions:

1)     At any time during the period that begins with September 1, 2008 and ends with December 31, 2009, an individual was involuntarily terminated from employment, other than for gross misconduct with his or her employer and the individual his or her qualified spouse and/or his or her dependent(s) are eligible for COBRA  coverage or state continuation coverage

2)     The individual, his or her qualified spouse or dependent(s) is eligible for COBRA Coverage or state continuation coverage.  The individual cannot be terminated for reasons of gross misconduct.

3)     The qualifying event with respect to the COBRA coverage consists of the involuntary termination of the covered employee’s employment and occurred on or after September 1, 2008 and on or before December 31, 2009.

4)     The individual is currently not eligible for coverage under any group health plan as an employee or dependent (other than coverage consisting of only dental, vision, counseling, or referral services, or a combination thereof), coverage under a health reimbursement arrangement or a health flexible spending arrangement or coverage of treatment that is furnished in an on-site medical facility maintained by the employer and that consists primarily of first-aid services, prevention and wellness care, or similar care (or a combination thereof) or is eligible for benefits under Medicare.

5)     The individual ‘s adjusted gross income for federal tax purposes for the taxable year(s) during which he or she receives this assistance will not exceed $145,000 if the individual is single or $290,000 if the individual is married and filing a joint return. (Note: If you are single and your adjusted gross income is between $125,000 and $145,000 or you are married and filing a joint return and your adjusted gross income is between $250,000 and $290,000, part or all of the individual’s  Premium Assistance Subsidy will be taxable. Please note, if an individual does receive COBRA premium assistance subsidy and have income as detailed above, the amount the individual receives will be included in his or her taxable income for the tax year(s) affected.

Remember if an individual is eligible for the COBRA Premium Assistance Subsidy and elects it, such election will disqualify the individual for the Health Coverage Tax Credit. If an individual is eligible for the Health Coverage Tax Credit, which could be more valuable than the Premium Assistance Subsidy, you will have a notification from the IRS.

Even if an individual is not eligible for the COBRA Premium Assistance Subsidy, may the individual, his or her qualified spouse and/or dependents elect COBRA coverage?

Yes. If an individual was involuntarily terminated from employment from his or her employer anytime on or after September 1, 2008 and before February 17, 2009 and are eligible for COBRA coverage, he or she will an another opportunity to elect COBRA coverage again even if he or she, his or her your qualified spouse and/or dependent(s) waived COBRA coverage in the past.

This special enrollment period may not apply to certain state continuation coverages. An individual should check with his or her employer, COBRA administrator or insurance company of details.

What if an individual did not elect COBRA coverage and his or her initial enrollment period has expired?

The individual, his or her qualified spouse and/or dependent(s) will have 60 days from the date of the Special Enrollment Election Notice to elect COBRA coverage again even if he or she eligible for the COBRA Premium Assistance Subsidy.  An individual, his or her qualified spouse and/or dependents may do so by completing the Special Enrollment COBRA Election Form and returning it to employer or COBRA Administrator specified on the notice.  You must pay the initial COBRA premium within a period of time specified in the Notice.

When will the new COBRA coverage start?

If the individual is eligible, his or her coverage under your employer’s group health plan will be effective the later of the first coverage period after the date of enactment (February 17 2009 (March 1, 2009 for calendar month plans) or the date of the individual’s involuntary termination with his or her employer.

When will the new COBRA coverage end?

The individual COBRA coverage will terminate on the earliest of following events to occur:

1)     18 months after his or her original qualifying event date (or the end of coverage period for the standard extensions of coverage under COBRA such as death of the employee, dependent ceases to be eligible for coverage, you are on Military Leave or you become SSA disabled);

2)     The date the individual is covered under any group health plan,

3)     The first day of the month for which the qualified beneficiary’s COBRA premium is not timely paid;

4)      The date the individual’s employer ceases to maintain any group health plan for its employees.

5)     The individual becomes eligible for Medicare.

What will the COBRA premium be under the COBRA Premium Subsidy and how long can the individual receive it?

If an individual is eligible for the COBRA Premium Assistance Subsidy, he or she will be required to pay up to 35% of the normal COBRA premium for the group health plan coverage in which the individual enrolled in under COBRA.  Failure to make the payment within the payment period specified will result in the automatic termination of the COBRA coverage and the individual will not be able to reinstate it at a later date.

The individual will continue to receive the COBRA Premium Assistance Subsidy until the earliest date to occur:

1)     The individual becomes eligible for coverage under any group health plan (other than coverage consisting of only dental, vision, counseling, or referral services, or a combination thereof), coverage under a health reimbursement arrangement or a health flexible spending arrangement or coverage of treatment that is furnished in an on-site medical facility maintained by the employer and that consists primarily of first-aid services, prevention and wellness care, or similar care (or a combination thereof) or is eligible for benefits under Medicare.

2)     9 months after either the first day of the first coverage period after enactment (February 17, 2009) (March 1 2009 for calendar month plans) or the first month after enactment that the individual becomes eligible for COBRA coverage.

3)     following the expiration of the maximum period of continuation coverage required (i.e. 18 months, 29 months or 36 months) that would normally apply.

If the individual is not eligible for COBRA Premium Assistance Subsidy, he or she will be required to pay 102% of the COBRA premium.  For state continuation coverage, the premium will be 100% of the premium

What Group Health Plans are eligible for the 35% reduction in premium?

The following plans are eligible for the 35% reduction:

1) Medical Coverage

2) Dental Coverage

3) Vision Coverage

4) Employee Assistance Plans (other than referral only plans)

5) Health Reimbursement Arrangements (HRA’s)

Remember, many state continuation coverages only apply to medical coverage.

Note:  Health Care Flexible Spending Account plans are not eligible for this subsidy.

How does an individual apply for the COBRA Premium Assistance Subsidy?

If an individual are currently enrolled in COBRA coverage and his or her involuntary termination date was on or after September 1, 2008 but on or before December 31, 2009:

An individual must complete an Application for COBRA Premium Assistance Subsidy.  Upon acceptance, the individual will be notified of how much premium you will need to remit and when initial payment is due.  Please note, an individual must continue to make your normal COBRA premium payment until he or she is approved for the COBRA Premium Assistance Subsidy.  Upon approval, any overpayment will be credited towards the individual’s future COBRA premiums.

If an individual is not approved, he or she will be notified of the denial and the reason for denial and the amount of the unreduced COBRA premium.

If an individual is not currently enrolled in COBRA coverage and his or her involuntary termination date was on or after September 1, 2008 but on or before February 16, 2009:

An individual must complete the an Application for the COBRA Premium Assistance Subsidy, the Special Enrollment Election Form and he or she will be informed when he or she must submit your initial premium payment

If the individual is not approved for the COBRA Premium Assistance Subsidy, he or she will be notified of the denial and the reason for the denial and the amount of the unreduced COBRA premium.

Please Note:  Failure to provide the proper notification to the designated representative of the employer may result in the individual’s loss of eligibility for the COBRA Premium Assistance Subsidy, but not of continued COBRA coverage.  All requests must be submitted in writing.  No verbal requests will be accepted.

How does an individual apply for COBRA Coverage if he or she is not eligible for the COBRA Assistance Subsidy, but have been involuntarily terminated?

An individual must complete the Special Enrollment Election Form within 60 days from the date of Special Enrollment Election Notice and he or she will be informed when he or she must submit his or her initial premium payment. Please note, COBRA coverage will not be reinstated and claims will not be paid until receive the full initial premium due is received

How does an individual notify the Plan Administrator of his or her or his or her Dependent’s eligibility for coverage under another group health Plan or Medicare after he or she begins to receive the COBRA Premium Assistance Subsidy?

An individual must notify his or her employer or COBRA Administrator in within 30 days of the first date in which he or she or his or her dependent will be eligible for coverage under another group health plan or Medicare.  The individual must do so in writing and include his or her name, the name of any other covered beneficiaries who are also now covered, the name of the employer that is receiving COBRA coverage from, the name of the group health plan that the individual will now be eligible for coverage under and the date he or she is be eligible.

Note:  Failure of an individual to provide notification of his or her eligibility for coverage under another group health plan or Medicare may result in a penalty of up to 110% of the amount of COBRA Premium Assistance Subsidy that the individual did receive.

What happens if the COBRA premiums that the individual is currently paying are already less than 35% of the total COBRA premium?

If an individual is  currently receiving a subsidy from either  his or her employer or any other source such as the Health Care Tax Credit and the subsidy results in your COBRA premium being less than or equal to 35% of the total cost of COBRA premiums, he or she does not need to do anything.  The individual’s premiums will remain the same.

However, if the individual’s current payment agreement ends within 9 months of the date either of coverage after the date of enactment (March 1, 2009 for calendar month plans) or within 9 months of the individual’s COBRA effective date (for involuntary terminations on or after September 1, 2009 but on or before December 31, 2009), the individual may be eligible for the COBRA Premium Assistance Subsidy for the remaining months.

If an individual needs additional information regarding the American Recovery and Reinvestment Act of 2009 or wish to appeal a declined application for the COBRA Premium Assistance Subsidy, he or she can go to: www.dol.gov/COBRA or call 1-866-444-EBSA (3272).

Can an individual enroll in another health plan that costs less money when receiving COBRA coverage?

An employer can decide to allow individuals to select from the current plan(s) available which have a lower monthly premium.  Such individuals will have 90 days from the date of a notice to change his or her current benefit election(s).  The plan with lower premiums may offer less benefits than the individual currently receives.

Congress Approves Stimulus With COBRA Subsidy

On February 13, the Congress passed the American Recovery and Reinvestment Act of 2009 (the “Act”).  The Act includes tax breaks for businesses and individuals. The Act is now cleared for the President’s signature.

The Act contains a 65% federal subsidy for COBRA premiums for up to 9 months for involuntarily terminated workers and for their families. This subsidy also applies to state health care continuation coverage if required by states for small employers.

To qualify for this premium subsidy, a worker must be involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009. This subsidy terminates upon offer of any new employer-sponsored health care coverage or upon Medicare eligibility.

This subsidy is also available to workers who were involuntarily terminated between September 1, 2008 and enactment, but failed to initially elect COBRA coverage because it was unaffordable. These workers must be given an additional 60 days to elect COBRA coverage and receive the subsidy. An employers will be required to locate employees laid off since September 1, 2008, who declined COBRA coverage to tell them they have a new right to opt for coverage with the federal government picking up 65% of the premium.

The subsidy is not available to individuals with an annual income exceeding $125,000 or to couples with annual incomes exceeding $250,000. The subsidy is not taxable to the individuals.

Q&A Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

Who is a qualified beneficiary under COBRA?

Under ERISA Section 607(3); Code Section 4980B(g)(1), PHSA Section  2208(3), and Treasury Regulations Section 54.4980B-3, Q/A-1(a)(1), a qualified beneficiary is an employees, spouse and dependent children, covered on the day before the qualifying event. It can include a child born or adopted by a covered employee during COBRA. A spouse added by a COBRA beneficiary during COBRA is not a qualified beneficiary. Former dependent is a qualified beneficiary and may add children during COBRA.

Can a qualified beneficiary change coverage elections during COBRA?

Yes, during annual enrollment, a qualified beneficiary must be given the same coverage choices as active employees, as provided in Treasury Regulations Section 54.4980B-5, Q/A-4(b).

Can a qualified beneficiary add benefit coverages during open enrollment?

Yes, a qualified beneficiary must be given the same options as active employees, as provided in Treas. Reg. § 54.4980B-5, Q/A-4(c).

When a qualified beneficiary elects COBRA coverage, must he or she be given a separate election for each benefit offered or one election for all benefits?

Under Treasury Regulations Section 54.4980B-2, Q/A-6, it depends. If an employer offers medical, dental, and vision under separate plans, the employer cannot offer the qualified beneficiary three separate elections

If the employers offers all benefits under one plan, the employer is only required to offer one election for all benefits.

When does an individual’s entitlement to Medicare terminate COBRA coverage?

If a qualified beneficiary’s Medicare entitlement occurs after COBRA coverage is elected, then the qualified beneficiary’s COBRA coverage can be terminated even though Medicare does not provide a benefit package as generous as the COBRA coverage, as provided in Treas. Reg. § 54.4980B-7, Q/A-3(a).

What is the effect on COBRA coverage if a covered employee becomes entitled to Medicare before the qualifying event?

When a covered employee’s qualifying event (i.e. a termination of employment or reduction of hours) occurs within the 18-month period after the employee becomes entitled to Medicare, the employee’s spouse and dependent children (but not the employee) become entitled to COBRA coverage for a maximum period that ends 36 months after the covered employee becomes entitled to Medicare, as provided in ERISA Section 602(2)(A)(v); Code Section 4980B(f)(2)(B)(i)(V); PHSA  Section 2202(2)(A)(iv) and Treasury  Regulations Section  54.4980B-7, Q/A-4(d)(1).

Does an employer still have to offer COBRA coverage to a qualified beneficiary if he or she becomes entitled to Medicare before the qualifying event?

Yes. When a qualified beneficiary is entitled to Medicare prior to electing COBRA coverage, he or she still receives COBRA coverage.  Because of the Medicare Secondary Payer Rules, the COBRA offer cannot be withheld because of Medicare entitlement.

One of my employees dropped his spouse from health coverage during annual enrollment and then files for divorce a few months later.  Does the employer have to offer the spouse COBRA coverage?

Yes.  Under Treasury Regulations Section 54.4980B-4, Q/A-1(c) and Revenue Ruling. 2002-88. a spouse is entitled to elect COBRA only if:

• The divorce actually occurred and

• The employee eliminated or reduced the spouse’s coverage “in anticipation” of the divorce.

When an employee retires and is offered retiree coverage by the employer, should an employer also provide such former employee with an election for COBRA coverage?

Yes. If a retiree is provided a COBRA Notice when electing retiree coverage and elects retiree coverage, such election cuts off any right to COBRA in the future, as provided under Treasury Regulations Section 54.4980B-4, Q/A-1(c).

In a situation where a married couple separately elect COBRA, does the employer charge each of them the single premium or does the family premium apply?

Under Revenue Ruling 96-8, the employer will comply with COBRA continuation coverage requirements by requiring the couple to jointly pay 102 percent of the family rate.