The American Recovery and Reinvestment Act of 2009 (ARRA) includes new requirements for employers to provide temporary subsidies to assist employees in maintaining COBRA continuation health coverage. These provisions apply to Cal-COBRA programs.
ARRA provides that “assistance eligible individuals” are now only required to pay 35% of the regular COBRA premium, with the employers responsible for the remaining 65%. “Assistance eligible individuals” are employees or their family members who are (1) otherwise eligible for COBRA continuation coverage, (2) who elect the coverage, and (3) who are or were involuntarily terminated for reasons other than gross misconduct between September 1, 2008 and December 31, 2009. Premium subsidies are phased out for certain high income individuals, who must repay part or all of the subsidy as an additional tax. While employers for self-insured plans, insurance companies, or health plans are now responsible for that 65%, they will be reimbursed for the subsidy through a credit on their federal tax returns.
Although the law became effective on February 17, 2009, ARRA permits the regular premium to be paid for up to two months after the effective date and the subsidy may be provided to former employees retroactively. The subsidized coverage is available for a total of nine months, but may be terminated earlier if any of the following occur: (i) the maximum period of COBRA coverage ends (ii) the employee becomes eligible for COBRA coverage under another group health plan; or (iii) the employee becomes eligible for COBRA coverage under Medicare. Employers may, but are not required to, offer employees the opportunity to switch to a same or lower priced group health plan.
Under the new rules, employers or their plan administrators must provide notice to all COBRA eligible employees of the premium reduction. Specifically, the notice must include:
necessary forms to establish eligibility for the premium reduction
contact information for the plan administrator and any other person maintaining relevant information concerning the premium reduction
a description of the extended election period for individuals who previously declined coverage
a description of the qualified beneficiary’s obligation to notify the plan of eligibility for subsequent coverage under another group health plan or Medicare and the penalty for failure to do so
a description – displayed in a prominent manner – of the qualified beneficiary’s right to a reduced premium and any conditions on entitlement to the reduced premium
a description of the option to enroll in other same or lower premium coverage, if applicable.
For individuals who became eligible for COBRA continuation coverage on or after September 1, 2008 but prior to the effective date of ARRA (including those who declined or dropped COBRA continuation coverage), a similar notice must be provided within sixty days of ARRA’s effective date. Consistent with ARRA’s mandate, the Department of Labor issued model notices on March 19, 2009.
Summary of Next Steps for Employers
Employers should take immediate steps to ensure compliance with the new COBRA rules including: (1) reviewing personnel files since September 1, 2008 to identify anyone who had a qualifying event and provide the required notices; (2) amending COBRA notices and forms to include the information required by ARRA; and (3) implementing procedures to retain documentation required by the IRS to claim reimbursement for the subsidy (including receipt of former employees’ 35% share of the COBRA premium, a declaration of the employees’ involuntary termination and other information necessary to verify the correct amount of the reimbursement).
*IRS Circular 230 Disclosure: In accordance with compliance requirements imposed by the Internal Revenue Service, Cooper, White & Cooper LLP informs you that any tax advice contained in this communication, unless expressly stated otherwise, is not intended and may not be used to (1) avoid penalties that may be imposed on taxpayers under the Internal Revenue Code or (2) promote, market or recommend to another party any of the matters addressed herein.