Joseph P. Bonavita
Employment E-lert

The American Recovery and Reinvestment Act of 2009 (the "Act") is the culmination of the stimulus bill that has been before both the House and Senate since the beginning of the Obama administration.  The Act was signed into law by President Obama on February 17, 2009.  A portion of the Act (Section 3001), entitled "Premium Assistance for COBRA Benefits," requires employers to immediately provide additional COBRA benefits to employees who are eligible under the Act.  The Act reduces the amount individuals are required to pay towards their COBRA premiums, increases the amount employers are required to contribute towards premiums, and then subsidizes employers for their contributions.

Employers must work quickly to coordinate their payroll and COBRA administration to ensure their COBRA plans comply with the Act's premium assistance requirements.  Employers must also locate and notify eligible former employees who previously declined COBRA coverage of their right to enroll and receive premium assistance.

The following is a summary of the Act as it relates to COBRA benefits, effective immediately:

What are the changes to COBRA premiums?

As of February 17, 2009, eligible individuals who elect to receive premium assistance are only required to pay thirty-five percent (35%) of their applicable COBRA premium.  The individual’s former employer must pay the remaining sixty-five percent (65%) of the COBRA coverage premium.  This new 65/35 payment structure constitutes the "Premium Assistance" provided by the Act.  The Premium Assistance structure applies regardless of the level of coverage the individual is receiving (single, family, etc.). 

Employers are also required to provide the same level of Premium Assistance under any State-based program which provides COBRA-like continuing coverage.  Thus, employers too small to be covered by COBRA will still have these new obligations under similar state laws.

Employers are able to later request a reimbursement from the federal government for the 65% of the premium they paid.  The reimbursement will come in the form of a payroll tax credit.  Employers providing health coverage through self-insurance may obtain reimbursement of their 65% portion as a credit against their quarterly federal employment tax filings.

Who is eligible for Premium Assistance? 

An individual (and qualified dependents), otherwise eligible for COBRA, who lost (or loses) his/her employer-sponsored group health coverage as a result of an involuntary termination between September 1, 2008 and December 31, 2009 and who elects to receive COBRA continuation coverage is an "Eligible Individual" who may receive premium assistance under the Act.  

Eligible Individuals who previously declined COBRA coverage:  Eligible Individuals who previously declined COBRA coverage may have done so because of the cost.  In response, the Act includes a special election period for Eligible Individuals who were eligible for COBRA coverage upon their termination, but did not elect to enroll at that time.  These individuals now have 60 days from the date the employer provides them with notice of their right to Premium Assistance to enroll in a COBRA plan and receive Premium Assistance.  This means that employers must locate Eligible Individuals who previously declined COBRA coverage and notify them of the Premium Assistance option.

For Eligible Individuals who previously declined COBRA coverage, the special election period does not alter the date on which their COBRA coverage ends.  Their COBRA coverage period would still begin to run on the date of their involuntary termination (even though they did not enroll in COBRA at that time) and would end 18 months thereafter (even if they did not enroll in COBRA until after receiving the notice of Premium Assistance).  Thus, if an Eligible Individual was terminated on September 1, 2008, but did not enroll until April 1, 2009 (after being notified of Premium Assistance), his/her COBRA coverage would still terminate 18 months after September 1, 2008 (when first eligible for COBRA).
 
Eligible Individuals currently enrolled in COBRA:  Individuals who are currently enrolled in COBRA are now entitled to the Premium Assistance rate.  During the period while the employer implements its Premium Assistance plan, it may continue to charge these individuals the full premium, but must then either reimburse the Eligible Individuals for the excess charges or credit their future premium payments by the amount of the excess charges.  Generally, the employer must credit or reimburse the currently enrolled Eligible Individual within 60 days of his/her payment of the full premium.

Right to change coverage:  Eligible Individuals who previously declined COBRA coverage as well as those who are currently enrolled in COBRA have the right to enroll in a health plan offered by the employer which is different from the plan the individual participated in when he/she was terminated.  If the employer offers multiple plan options, the employer must permit the employer to change plans if:

1.    The premium for the new plan selected by the Eligible Individual is equal to or less than the premium for the plan which the individual was enrolled in when he/she was involuntarily terminated;
2.    The newly-selected plan is also offered to active employees at that time; and
3.    The newly-selected plan is NOT: (a) a plan that offers only dental, vision, and/or counseling services, (b) a flexible spending account, or (c) a plan that only allows for treatment at an on-site medical facility maintained by the employer.

Eligible Individuals wishing to change plans and receive Premium Assistance must do so within 90 days of the date the employer provides them with notice of their right to Premium Assistance.
 
Is anyone specifically excluded from receiving Premium Assistance?

Yes.  Otherwise Eligible Individuals with a federal modified adjusted gross income of over $145,000 (single) or $290,000 (married) during the year in which they qualify for COBRA coverage are not eligible for Premium Assistance.  These individuals are still entitled to receive COBRA benefits, but must pay the full premium amount.   

What COBRA periods are covered by Premium Assistance?

The Act does not provide any Premium Assistance prior to the date it was enacted (February 17, 2009).  An Eligible Individual is therefore not eligible to receive Premium Assistance for any COBRA coverage periods prior to March 1, 2009, and employers are only required to provide Premium Assistance for periods beginning on or after March 1, 2009.

For how long must the employer provide Premium Assistance?

Employers must provide Premium Assistance to an Eligible Individual for a maximum of nine months.  After nine months, the employer may increase the Eligible Individual's premium to 102% of the total cost of COBRA coverage for the individual's remaining COBRA eligibility period.  The Premium Assistance period, as well as the COBRA coverage period, end altogether on: (1) the date the individual becomes eligible for another group health plan or for Medicare; or (2) the date the individual's COBRA coverage would have expired if he/she had elected COBRA coverage initially.  
 
Who must the employer notify of the Premium Assistance option?

Employers must notify both Eligible Individuals who are currently enrolled in COBRA coverage and Eligible Individuals who are not currently enrolled in COBRA coverage (either because they never elected COBRA coverage or because they elected COBRA coverage but later terminated their coverage) but who were eligible for COBRA at the time they were involuntarily terminated of their right to Premium Assistance and to change plans (if applicable).  The employer may provide the required notice either by amending its existing COBRA notices to include the required Premium Assistance information or by a separate "Premium Assistance For COBRA Benefits" notice.
 
Are Eligible Individuals required to notify the employer of events terminating their Premium Assistance subsidy?

Eligible Individuals receiving Premium Assistance are required to notify the plan administrator if they become eligible for subsequent group health benefits or for Medicare.  An individual who fails to inform the plan administrator of such termination of eligibility is subject to pay a penalty of 110% of the premium reduction provided after the termination of eligibility.

How do employers apply for reimbursement?

The Act requires employers to advance the premiums for Eligible Individuals until the employer's payments can be recouped through reduced federal payroll taxes.  Employers must calculate the total amount of premiums advanced towards Premium Assistance and then use this amount to offset their federal payroll tax liability.  "Payroll taxes" includes amounts to be withheld for federal income tax and both employer and employee portions of FICA, Social Security and Medicare taxes.  Employers will be required to provide additional information for reimbursement such as attestations that terminations were involuntary and proof of the levels of coverage that Eligible Individuals are receiving.
 
What should employers do about Eligible Employees currently enrolled in COBRA?

Employers must notify Eligible Individuals of their right to Premium Assistance no later than April 18, 2009.  The Department of Labor has until March 19, 2009 to prepare a form notice for employers to use (or employers may prepare their own form notices).  Eligible Individuals then have 60 days thereafter to elect to enroll in a COBRA premium assistance plan (and 90 days to change plans).  

PROVIDING NOTICE OF PREMIUM ASSISTANCE
FOR COBRA BENEFITS TO ELIGIBLE INDIVIDUALS

Employers must send Eligible Individuals a written notice of the new Premium Assistance option by April 18, 2009.  If employers choose not to wait the 30 days in which the Secretary of Labor has to provide model notices, then below are the notice requirements:  

1.    Prominently describe (ex. in bold, all caps) that: the Eligible Individual has a right to a reduction in their COBRA premium as a result of their termination between September 1, 2008 and December 31, 2009; that if they choose to elect COBRA continuation coverage under the reduced premium option, the employer will pay 65% of their COBRA premiums and the individual will pay the remaining 35% of the premiums for a maximum of nine months;

2.    Notify Eligible Individuals who previously declined COBRA coverage that they now have the opportunity to enroll at the reduced premium rate and that, if they choose to partake in the reduced premium rate, they must enroll within 60 days of the date they receive the notice;

3.    Notify Eligible Individuals of their option to enroll in coverage other than the coverage they were enrolled in at the time of their termination, subject to the requirements of the Act, and that, if they choose to change plans, they must do so within 90 days from the date they receive the notice;

4.    Include the forms necessary to establish that the employee is eligible for Premium Assistance;

5.    Inform Eligible Individuals that they are required to notify the plan administrator providing COBRA Premium Assistance coverage if they become eligible for subsequent group health benefits or Medicare, and that, if they fail to inform the plan administrator of such eligibility, they are subject to the penalty provided by Section 6720C of the Internal Revenue Code (110% of the premium reductions paid); and

6.    Provide the name, address and telephone number of the plan administrator and any other person who can provide relevant information with respect to Premium Assistance.