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.