1. FEATURE STORY:
COBRA COMPLICATIONS ARISE FROM ECONOMIC STIMULUS LAW
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009. A centerpiece of this law is a 65% subsidy for employees who are involuntarily terminated between September 1, 2008, and December 31, 2009, and who are eligible to continue health care coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Warning: The law doesn't define involuntary termination. As under regular COBRA law, qualified beneficiaries have an independent right to elect COBRA, and the subsidy will apply to them, as well.
Subsidy Details
To ensure that the subsidy is targeted to workers who are most in need, employees must attest that their same-year modified adjusted gross income won't exceed $125,000 ($250,000 for families). The subsidy is completely phased out for taxpayers whose modified adjusted gross income exceeds $145,000 ($290,000 for for families). Employees can make a one-time permanent election out of the subsidy.
The federal government is generally not picking up 65% of the tab, however. Instead, COBRA-payable entities (note that this may or may not be the terminating employer) take a credit in the form of reduced payroll tax deposits. Therefore, it's imperative that you work with your Payroll department or payroll service bureau to ensure that the following information flows between the terminating employer and the COBRA-payable entity:
the names of employees who are involuntarily terminated; the names of employees who elect the subsidy; the total monthly subsidy for all employees; the dates employees make their subsidized COBRA payments; and the dates employees' subsidies end.
Prior to taking the 65% credit, COBRA-payable entities must first actually receive employees' reduced payments.
Employers that pick up COBRA payments for employees who were voluntarily separated (a common experience that occurs during termination negotiations) will have to separate those individuals from COBRA-subsidy-eligible employees, since they're not eligible for the subsidy.
The subsidy is extended to employees with comparable COBRA coverage under state laws. This primarily impacts employers too small for Federal COBRA coverage. What's comparable: To be comparable,one must have the right to continue substantially similar coverage as was provided under the group health plan at a monthly cost that's based on a specified percentage of the group health plan's cost.
Subsidy Periods
The standard 18-month COBRA coverage period doesn't change. The subsidy begins with coverage periods beginning on or after February 17, 2009. So, for most employees, the subsidy begins with COBRA checks they write in March. Employees' eligibility for subsidized premiums ends with the first month beginning with the earlier of the following events.
The date that's nine months after the first month for which the subsidy applies. Employees are still entitled to the remainder of the regular COBRA coverage period, provided they once again pick up 102% of the cost.
The end of the maximum COBRA period.
The date employees become eligible for Medicare or become eligible to be covered under another group health plan. However, eligibility for coverage under another group health plan won't terminate subsidized COBRA coverage if the new plan is limited to dental or vision benefits, to counseling or referral services, or is a flexible spending account or a health reimbursement arrangement.
Group health plans may permit employees eligible for subsidies to elect any health plan options that their former employers offer to current employees, which have the same or lower premiums than their previous health benefits options. Employees have 90 days to make their elections.
Employees must notify the COBRA-payable entity of their eligibility for new group health benefits. Those who don't notify that entity may be penalized 110% of the premium. Penalties won't apply if employees simply stop paying their COBRA premiums.
Special Enrollment Rights
Again, the length of the COBRA coverage period doesn't change. However, employees who originally elected not to take COBRA, and employees who originally elected COBRA but dropped it because they stopped paying their premiums, have a 60-day special enrollment period during which they may decide to take the subsidized premium. The 60-day period begins on the date they receive notice of their special enrollment rights. So, for example, if an employee could have elected COBRA in December 2008, but failed to do so at that time, and he elects COBRA in March 2009, his COBRA coverage runs out 18 months from December 2008, not 18 months from March 2009.
Overpayment Credits
Employees who are eligible for the subsidy, but who pay the normal 102% of their COBRA premiums for any month during the 60-day period beginning on the first day of the first month after February 17, 2009, may have those overpayments credited toward their future subsidized payments. Hitch: The COBRA-payable entity must be reasonably certain that the credit will be used within 180 days of the overpayment. If the COBRA-payable entity isn't reasonably certain, it must reimburse employees for the amount of their overpayments within 60 days.
Notice Requirements
Current COBRA notices must be rewritten to include comprehensive information regarding the subsidy. A new notice describing special enrollment rights must also be provided to employees. The Secretary of Labor is directed to release a model notice regarding special enrollment rights within 30 days.
|
Home
.jpg "EL Today Masthead")
