New defense bill extends COBRA subsidy and subsidy eligibility

Inside the new $626 billion dollar defense bill that Congress just passed (and the President is expected to sign) is a provision extending the American Recovery and Reinvestment Act (ARRA) COBRA subsidy.

For assistance eligible individuals (AEIs), the new legislation will:

• Extend the eligibility for the 65% COBRA subsidy from December 31, 2009 to February 28, 2010 (making workers whose COBRA eligibility begins on or before 2/28/2010 now eligible for the subsidy)
• Adds 6 months to the 9 month period during which the federal government would pay the 65% subsidy to Assistance Eligible Individuals’ COBRA premiums

Also, the legislation will give beneficiaries whose subsidy ran out and who did not pay the full COBRA premium, a second chance to opt for coverage. For example, if an AEI’s subsidy eligibility ran out on November 30, 2009 and they did not pay the regular, unsubsidized COBRA premium for December, they could opt to pay their 35% share of the premium in January and get coverage for December.

What employers need to do:

Provided that President Obama signs this bill into law, employers will need to do the following:

• Notify current and future COBRA beneficiaries of the new 15 month subsidy
• Notify current and future COBRA beneficiaries of the subsidy’s new deadline of February 28, 2010

 The ARRA Act COBRA subsidy has greatly increased the number of terminated employees who take COBRA.

As employers, you should expect a high percentage of those who elected COBRA under the subsidy plan and have not found employment yet to continue COBRA under this extension. So don’t be guilty of failure to notify them about this benefit.

DOL ‘s new COBRA subsidy guidelines and what they mean for workers laid-off in December 2009

The American Recovery and Reinvestment Act (ARRA) COBRA subsidy President Obama signed back in February will soon come to an end for those who aren’t already qualified.  To clear up any confusion that may arise from this, the Department of Labor (DOL) released two FAQs  to guide employers on determining eligibility.  

The first FAQ states that in order for employees to be eligible for the 65% COBRA subsidy, they must satisfy two conditions:

1. They must have been involuntarily terminated between September 1, 2008 and December 31, 2009
2. They must have been eligible to receive COBRA during that period

The second condition is where the confusion lies.

Many employers allow laid-off employees to remain on the company’s health insurance up until the end of the month in which they were terminated. As a result, they don’t become eligible for COBRA coverage until the first day of the month after their termination. 

So, an otherwise Assistance Eligible Individual (AEI) who is laid-off on any day in December 2009 would not be eligible for the 65% COBRA subsidy—that is, if his or her company allows employees to stay on their health plan through the 31^st.

The second FAQ states that AEI’s whose COBRA eligibility begins in December 2009 or earlier are eligible to receive the subsidy for up to nine months as long as they remain qualified. So, an employee who’s laid-off in November may be eligible to receive the COBRA subsidy all the way up through August 2010 as long as they’re qualified.

Although bills have been proposed in Congress to lengthen the COBRA subsidy for AEIs, lengthen the time period for COBRA eligibility, and up the amount of the subsidy from 65 to 75 percent; no changes to the COBRA law have been made to date. However, as soon as any new laws are passed, you can count on us to keep you posted.

House bill could extend Federal COBRA subsidy by 6 months

The House of Representatives introduced a new bill that would extend the ARRA Act’s COBRA premium subsidy 6 months. The bill would also extend COBRA subsidy eligibility to a new group of laid off workers.

COBRA Subsidy Recap:

As you may already know, the government passed a law giving employees who  were  “involuntarily terminated” between September 1, 2008 and December 31, 2009, a 65% COBRA health care premium subsidy.  The COBRA subsidy became available to these Assistance Eligible Individuals (AEIs) March 1, 2009. AEIs could collect the subsidy for 9 months or until their COBRA eligibility ran out, whichever came first.  

If the House’s proposed bill becomes a law, here’s what would happen:

1. The COBRA subsidy would be available to AEIs for 15 months.
2. Individuals who were laid off between January 1, 2010 and June 30, 2010 would become eligible for the subsidy.

COBRA subsidy doubles election rate:

In the time since the ARRA Act’s COBRA subsidy became effective, the number of Assistance Eligible Individuals (AEIs) opting for COBRA coverage doubled to 38%. This is a clear message that people want health insurance and will pay for it when the premium becomes more affordable. The Obama administration is currently looking into whether or not the subsidy should be extended. 

As of now, we don’t know if it will be extended or if more workers will become eligible, but you can definitely count on us to keep you posted.

DOL and CMS issue final applications for expedited review of denied ARRA COBRA subsidies

Under the American Recovery and Reinvestment Act (ARRA), COBRA premium Assistance Eligible Individuals (AEIs) who believe that they’ve been wrongfully denied subsidized coverage may apply for an expedited review of their status by one of two federal agencies, the Department of Labor (DOL) and the Department of Health and Human Services Centers for Medicare & Medicaid Services (CMS) . Once an AEI applies for expedited review, the DOL or CMS must complete the review within 15 business days.

Individuals who wish to apply for expedited review appeal directly to the federal agencies. Unless either of the agencies contacts them with inquiries for additional information, no further employer action is required.

The DOL and CMS have finalized the application forms that individuals must use and have published them to their websites respectively. Individuals may print a copy of the form and mail or fax it back to the respective federal agency. Individuals using the DOL form may alternatively elect to complete the form online. Which agency’s form the individuals complete is determined by the type of group health coverage they had at their former employer.

Only Assistance Eligible Individuals (AEIs) formerly covered under private-sector group health plans may download and complete the DOL application. Government employees (both federal and state) as well as covered under their state’s “mini-COBRA” law (i.e. companies with fewer than 20 employees for 50% or more of the past calendar year) must use the CMS’ comparable application.

What employers should keep in mind:

When determining COBRA subsidy eligibility for individuals formerly covered under private-sector group health plans, the DOL is not required to defer to your previous decision to deny coverage. The DOL is commonly inclined to rule in favor of an employee’s application.

What employers and COBRA-payable entities need to keep track of for the IRS

One thing HR professionals know is that you need to document everything that’s regulated, and COBRA is highly regulated. As you may already know, the 65% of a former employee’s COBRA premium that you, the employer, pay to the insurance carrier up front is subsidized through a refund or reimbursement on the newly updated Form 941. But, in order for your company to actually get this reimbursement, the IRS requires you to maintain a considerable amount of supporting documentation.

According to the IRS, employers and other COBRA-payable entities must maintain the following:

• Information on the receipt, including dates and amounts, of the employees’ 35% share of the premium.
• For insured plans, a copy of the invoice or other supporting statements from the insurance carrier, as well as proof of timely payment of the full premium to the insurance carrier.
• An attestation, including termination dates, that employees were involuntarily terminated between September 1, 2008, and December 31, 2009. (i.e. an ex-employee’s termination letter)
• Proof that employees and dependents were entitled to COBRA at any time between September 1, 2008, and December 31, 2009, plus their COBRA election documentation.
• A record of employees’ Social Security numbers, the amount of the subsidy reimbursed with respect to each COBRA-covered employee, and whether the subsidy was for one individual or two or more individuals. (we recommend that employers keep a log of this information)

Did you know that your company needed to maintain all of this information?

Does your Fiscal department know about these requirements?

Do you have the steps in place to be sure the necessary documentation and information is kept track of for COBRA subsidies?

This is just some of the vital information you need to know about the ARRA COBRA subsidy and the new employer requirements it has created.

The ARRA COBRA subsidy and the “marriage penalty”

Even before the ARRA Act went into effect this February and the federal COBRA subsidies began, it wasn’t always easy to follow what was, and was not, applicable to an individual and their family. To make matters more complicated, although COBRA is a federal law, some states, such as Massachusetts, have their own legislation that may or may not apply to a specific individual’s situation.

One example of an area that isn’t so easy to comprehend, but is vital to everyone, is the “Marriage Penalty.” Here’s the million-dollar question on this issue: If a married employee is laid off, and his or her spouse’s employer offers health insurance, is he or she still eligible for subsidized COBRA coverage with a former employer?

Under the ARRA Act, the answer to this question is NO. The ARRA COBRA subsidy is NOT extended to otherwise assistance eligible individuals (AEIs) whose spouses are currently employed and are currently enrolled in their employer’s health insurance plan.

In Massachusetts, where individual health insurance coverage is required, the state legislation would then kick in, and these otherwise AEIs would have two options:

1. Take unsubsidized family coverage on their spouse’s plan, or

2. Go to the Commonwealth for coverage.

In most other states, their options would be to either take unsubsidized family insurance on their spouse’s plan or remain uninsured.

The goal of the ARRA COBRA subsidy was to help make sure that newly unemployed Americans could afford to have health insurance coverage– thus, avoiding financial devastation due to unforeseen medical costs or illness. Our legislators have clearly dropped the ball here. Monthly premium costs for most family plans come in around $1,200+ per month, and employer contribution percentages for these plans generally remain low.

So an estimate for the average additional cost that a married couple would incur, if they needed to switch from both spouses having individual insurance through their respective employers, to one spouse getting laid off (and both spouses now having to take the family plan through the employed spouse’s employer), would be $400 dollars.

A married couple with only one income would be saddled with $400 extra dollars per month, right at the time that one of them has lost their job. This is supposed to be a stimulus?

Fortunately, new answers to affordable health coverage are starting to pop up, and although these are far from perfect, we can (sadly) count on the ever-growing number of uninsured American families to inspire more and more alternatives in this area.

If you or your spouse has recently terminated employment and lost health coverage, make sure to check the various subsidies or health insurance options that your own state may offer. A simple Google search should get you started. Remember that even choosing a high-deductible medical insurance that covers only “major medical” illnesses and injuries could be a financial life saver down the road.

When is resignation “involuntary termination”?

For the purposes of the new ARRA Act COBRA subsidy, determining who qualifies as an Assistance Eligible Individual (AEI) due to an “involuntary termination” is a lot more complicated than many HR professionals think. That’s why the IRS released Notice 2009-27 on April 1, 2009 and included in it both a definition and further clarification of “involuntary termination” when dealing with the COBRA subsidy. With just two weeks left to notify all AEIs of the new COBRA subsidy, HR professionals must know what exactly “involuntary termination”means, what it includes and what it excludes. That way they can ensure compliance by notifying everyone about the subsidy and not inadvertently leaving anyone out.

The Notice defines an “involuntary termination” as:

“a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services”

based on all the facts and circumstances.

For COBRA Premium Assistance purposes, the facts and circumstances are what determine whether a termination is involuntary.

This means that under the IRS Notice 2009-27, a termination otherwise deemed “voluntary” (or a resignation) will be considered involuntary if the facts and circumstances indicate that the employer would have terminated the employee anyway and that the employee knew that his or her employment would be terminated.

In Notice 2009-27, the IRS gives examples of situations where the terminated employee would be eligible for COBRA due to the fact that his or her termination was deemed “involuntary” given the facts and circumstances. These circumstances include, among other things:

• Failure of an employer to renew an employee’s contract at the time it expires (provided that the employee in question is willing and able to continue work under the contract)
• Constructive discharge
• Involuntary reduction in an employees work hours to zero resulting in loss of health coverage
• Early retirement of employees who would have been laid off otherwise
• Voluntary termination of employment due to an employer-initiated material reduction in the employee’s work hours or material change in the geographic location
• Voluntary termination in return for a severance package (i.e. a buy-out) offered to the employee by his or her employer.

Federal Changes to Employee Benefits Under the ARRA Act

The many changes to benefits under the recent American Recovery and Reinvestment Act (ARRA) legislation are certainly complicated. For instance, there’s been an increase in the monthly statutory limit to commuter benefits, which has gotten very little attention in the media and risks being overlooked by many employers. Although employers and HR departments should be responsible for absorbing and disseminating ALL legislative changes and information, the reality of managing that – on top of countless other responsibilities – is difficult at best.

Having an insurance broker who expertly navigates all of these changes and relieves your company of countless hours of research – and possibly even takes time-consuming and costly burdens such as COBRA administration and off your back – is one way to provide your company with a solid foundation for compliance. It also saves you from missing any of the subtle updates and revisions to the legislation (such as the recent IRS announcement that Line 12b on subsidy Form 941 should be calculated and entered based on each individual receiving a subsidy, regardless of the number of people benefiting from that subsidy).*

When your HR team is freed up from the endless hours they spend on benefit administration, COBRA, and fielding routine questions about coverage, they will be far more available to do what they do best – RECRUITING AND RETAINING TOP EMPLOYEES.

ARRA Act Changes to Commuter and Transit Benefits:

Effective as of March 1, an amendment to Code Section 132 (f)(2) raises the monthly limit for qualified transit passes and commuter vehicle expense benefits (the two of these reaching a combined maximum benefit) from $120 to $230 per-month. Employers now have the option of allowing participants to make or change their commuter and transit benefit elections accordingly. The ARRA Act also contains a sunset provision so that the increase in the monthly limit will expire on December 31, 2010 (unless it is extended in future legislation, which is possible).

Keep in mind that with these changes, there are stipulations worth noting. For instance, the effective date of the change in the maximum amount will be effective the first of the month following notification.

You can find more information on this subject at http://www.delawareemploymentlawblog.com/2009/03/employee_benefits_update_chang.html. As always, legislation changes from state to state, and you must consult your own benefits expert or legal department to see which changes affect your state and your company specifically.

*For specific information on the IRS regulation regarding Form 941 or to download a copy of the Form in its entirety, go to http://www.irs.gov/pub/irs-pdf/f941.pdf

Changes in COBRA Part 2–What Employers Need To Do

The new COBRA laws enacted in February will allow millions of Americans to keep their medical benefits, but they will also create an undeniable administrative burden for employers. Here’s a little background AND what has to happen for you to meet that burden and be sure that you’re in line with the new legislation.

On February 17th, 2009, President Obama signed the “American Recovery and Reinvestment Act (ARRA)” into law. “ARRA” provides a partial subsidy of COBRA and state mini-COBRA premiums to qualifying “assistance eligible individuals” (AEIs), their spouses, and their dependents. Premium assistance for these individuals began on or after the date the law went into effect and at this point lasts through December 31, 2009.

Once eligibility is determined according to the parameters of the law, here’s what employers need to DO to be in concert with the legislation.

What Employers Need to DO

COBRA subsidies became available starting March 1, 2009. The employer must take the following actions promptly, if they have not done so already.

1. Notices to re-enroll for current COBRA recipients:

Qualified beneficiaries who are currently on COBRA must make a new election to establish premium assistance under ARRA. You must send these individuals COBRA re-election notices with their new temporarily subsidized rates.

2. Extended election period for AEIs who didn’t initially elect COBRA:

The ARRA legislation applies to all assistance eligible individuals whose dates of involuntary termination extend back to September 1, 2008. These individuals who did not initially elect COBRA or who have allowed their COBRA coverage to lapse now have a special extended COBRA election period (beginning February 17, 2009 and ending 60 days after they receive an employer-provided notice). Thus the employer must track down all employees whose coverage has been terminated since September 1, 2008 and send them the newly required subsidy availability and election notice.

3. Finally, Emplouers must notify insurers of who is participating in the newly-subsidized COBRA coverage.

Please note that if you fail to provide timely notification (i.e. within 60 days of the Act becoming a law– by mid-April at the absolute latest) to all Assistance Eligible Individuals (AEIs), you are subject to standard COBRA penalties under ERISA (up to $110 per-day). You may also be subject to excise taxes of $100 per-day per-notice under the Internal Revenue Code.

Can your company afford not to send all assistance eligible individuals timely notification?

The Department of Labor has been directed to update notices within 30 days of ARRA enactment, which has obviously passed (March 17, 2009) at the absolute latest. However, if you handle your company’s COBRA in-house you were also required to have an updated general notice by March 17, 2009 to reflect the changes brought about by ARRA to the COBRA law. So there is NO time to waste on this.

Finally, keep in mind that this is not cast in stone, for instance, the deadline on the legislation is the end of 2009, but that may be extended, and your state may also have legislation changes that must be followed. In the case of Massachusetts, for instance, some changes are even more aggressive. Be sure to stay on top of these issues – whether you’re an employer OR an employee. It’s a responsibility that you dare not overlook.

Changes in COBRA Part 1- Eligibility and How it Works (for employers and employees)

Our economy has obviously gone through some major hits over the last year. The new administration has taken on some major legislative changes in hopes of not only stimulating the economy, but also protecting families who have lost their jobs (or who will lose their jobs). Remember, until recently, the number one reason that families would go bankrupt was medical debt. Thus, encouraging hard-hit families to keep their medical coverage, even though they may be out of work, is a smart decision – and a meaningful one across the board.

Our government’s $787 billion stimulus package mandates employer action on COBRA assistance subsidies effective March 1, 2009. If you’re not sure what this means for your company specifically, read on!

President Obama signed the new “American Recovery and Reinvestment Act (ARRA)” into law in February of this year. This is a great thing for the ever-growing number of Americans who have lost their jobs over the last year. But like most COBRA legislation, it does create more work for employers.

ARRA provides a partial subsidy of COBRA and state mini-COBRA premiums to qualifying “assistance eligible individuals” (AEIs), their spouses, and their dependents. Premium assistance for these individuals began on or after the date the law went into effect (February 17, 2009) and at this point lasts through December 31, 2009.

Who is Eligible:

Assistance Eligible Individuals (AEIs) are qualifying COBRA beneficiaries and are defined as follows:

• Have become eligible for COBRA continuation coverage on or after September 1, 2008 (and at this point before December 31, 2009).
• Qualified for COBRA due to involuntary termination (for reasons other than gross misconduct).

Further, COBRA premium assistance is not available to individuals whose adjusted gross incomes exceed $145,000 annually (this number is $290,000 annually for joint-filers). Also, it’s important to note that for individuals whose annual adjusted gross incomes fall between $125,000 and $145,000 ($250,000-$290,000 for joint filers), COBRA subsidies are phased out through added taxes. Employees subject to these taxes can permanently waive their rights to a subsidy and pay the full COBRA premiums.

The ARRA legislation applies to medical, dental, vision and employee assistance programs. It does not apply to Medical FSA accounts (often called cafeteria plans).

How the COBRA Subsidy Works:

Premium subsidies are available to AEIs for up to nine months of their maximum COBRA coverage period. Subsidy amounts are based on the actual cost of COBRA premiums that the AEIs would otherwise incur.

Assistance eligible individuals will first contribute 35 percent of the monthly premium cost. The employer will then pay the remaining 65 percent and submit the payment to your insurer directly. The federal government will reimburse you for your contribution amount through a credit or refund of an overpayment of payroll taxes through the 941 Filing. The IRS will release an updated Form 941 that reflects this tax credit in the near future. If elected, subsidized COBRA coverage for the AEI will start the first of the month. His or her eligibility for COBRA subsidies will terminate on the earlier of the following:

• Nine months following their his or her date of COBRA election/re-election

• An offer of any new employer-sponsored health care coverage

• Medicare eligibility

Remember, these are the national, legislative changes in COBRA – and thus the minimum changes that you or your company must adhere to. Your STATE may also have legislation to be followed, and in some cases, it may be broader, etc. For instance, in the case of Massachusetts, the laws are far more aggressive and involved. Just be sure to be educated in this issue – whether you’re an employer OR an employee, this is a vital part of what’s happening right now.

Finally, remember to stay abreast of this. Right now the time limit on the legislation is December 31, 2009, but that may be extended in the future. Don’t assume that the dates are set in stone.