COBRA Changes under The American Recovery and Reinvestment Act

COBRA Changes under

The American Recovery

and Reinvestment Act

February 26, 2009

Eric R. Paley

Overview

• Government subsidy for continuation coverage

– 65% of cost of COBRA coverage for nine months

– Available only to assistance-eligible individuals (AEIs)

New Requirements

• “Second chance” election

• “Opt down” option

• Modified COBRA notices and new forms

• Payroll tax offsets

Timing

• March 1, 2009 effective date for the subsidy

How Much Is The Subsidy Worth?

• Deemed payment in full upon 35% payment

• Does not apply to payments made by employer

• Subsidy is not generally paid in cash

How Long Does The Subsidy Last?

– May end before COBRA coverage period ends

• Can end sooner where:

– AEI become eligible for other group health coverage

– AEI becomes eligible for Medicare

– COBRA ends

Who Is Eligible For The Subsidy?

– Covered employee or qualified beneficiary

– Eligible for COBRA or mini-COBRA coverage

– Involuntary termination

What Coverage Is Eligible For The Subsidy?

– Includes group health plans, dental plans, vision plans, prescription drug plans

– Does not include FSA under § 125 plan

What Is A “Second Chance” Election?

• AEIs involuntarily terminated and became eligible for COBRA between September 1, 2008 and February 16, 2009

– Did not elect COBRA; or

– Dropped COBRA coverage

• Election period from February 17, 2009 until 60 days after notice

Does The “Second Chance” Election Period

Extend The COBRA Coverage Period?

• No extension of maximum coverage period

• Continue to measure from date of original qualifying event

What Is An “Opt Down” Election?

• AEIs may enroll in different coverage option available to active employees, but with cost limitation

• Coverage runs for entire period of COBRA coverage, regardless of when subsidy ends

What Are The New Notice Requirements?

– All individuals who lost coverage on and after September 1, 2008

• Many required elements

• New forms

When Are The New Notices Due?

terminated on or after February 17, 2009

• Must be distributed by April 18, 2009 for those with

What If An AEI Is Denied The Subsidy?

• Expedited review by Secretary of Labor

• De novo review of initial denial

How Is The Subsidy Funded?

• Recipient reduces payroll tax deposits by amount equal to 65% of premium

What Is The Two-Month Grace Period?

• Inability to modify March or April COBRA invoices to reflect subsidy

• May charge full premium

Are There Income Limitations?

• Phase-out of subsidy for AEIs with AGI of $125,000 ($250,000 for joint return).

• Subsidy recaptured

Are There Tax Reporting Obligations?

Open Issues

• Notice requirements

• “Involuntary termination”

• Employer subsidy

• “Comparable” state mini-COBRA laws

Special Situations

• Coordination with subsidy claimant

• Coordination with TPAs/insurance carriers

• Retiree health benefits

Getting Ready

• Coordinate with TPAs

• Decide whether to offer plan enrollment option

• Develop new notices and forms

• Prepare address file for new notices

• Prepare for special election period

Getting Ready

• Seek legal counsel on special situations

• Review cost of coverage and reconsider employer subsidies

• Calculate premiums for invoices

• Determine how to credit overpayments

Hypothetical #1

Company terminated Employee on September 5, 2008.

Hypothetical #2

Hypothetical #3

Hypothetical #4

Nixon Peabody Benefits Team

Kate Ulrich Saracene