Cobra Premium Subsidy Coverage Expansion and Actions Required to Implement

Steps Required in ARRA for Human Resources - Meet HR Stimulus Expansion of COBRA

What COBRA premium subsidy does the ARRA provide?

Under the ARRA, the federal government will subsidize 65 percent of the COBRA premium actually charged to an "assistance eligible individual" (AEI) for up to nine months.

How is the subsidy provided?

Under the subsidy program, a group health plan can require an AEI to pay only 35 percent of the COBRA premium that the AEI would otherwise be required to pay. The federal government will reimburse an employer for the remaining 65 percent of the COBRA premium by allowing the employer to take a credit against the employer's liability to deposit payroll taxes and federal income taxes withheld from employees' compensation.

Who are "assistance eligible individuals"?

An AEI is a COBRA qualified beneficiary who meets all three of these criteria:

• Is eligible for COBRA coverage at any time on or after Sept. 1, 2008 and on or before Dec. 31, 2009.
• Elects COBRA coverage either during the original COBRA election period or during the special election period provided by the ARRA.
• Is a COBRA qualified beneficiary because of an involuntary termination of a covered employee's employment (other than for gross misconduct) that occurs on or after Sept. 1, 2008 and on or before Dec. 31, 2009.

An AEI may be a covered employee or a covered employee's covered spouse or dependent child who became a qualified beneficiary because of the involuntary termination of the covered employee's employment.

When does the subsidy begin?

The subsidy applies to periods of COBRA continuation coverage beginning after the enactment of the ARRA. A "period of coverage" is the monthly (or shorter) period for which COBRA premiums are charged. For group health plans using calendar months as the period of coverage, the subsidy applies beginning March 1, 2009.

When does the subsidy end?

The subsidy ceases to apply (and a plan administrator may again charge the full COBRA premium) as of the earliest of:

• The date the AEI becomes eligible for coverage (not actually covered) under another group health care plan (other than plans providing only dental, vision, counseling, or referral services, a health care flexible spending plan, or a health reimbursement arrangement) or Medicare coverage; or
• Nine months after the first day of the first month to which the subsidy applies; or
• The end of the maximum COBRA coverage period required by law (including permissible early terminations); or
• For an AEI who elects COBRA during the special enrollment period (discussed below), the end of the maximum COBRA coverage period that would have applied if the AEI had elected COBRA coverage when first entitled to do so.

The act requires an AEI who becomes eligible for coverage under another group health plan to notify the plan providing COBRA coverage in writing. An AEI who fails to provide the required written notice is subject to a penalty 110 percent of the subsidy provided for the AEI after the date the AEI became eligible for the other coverage.

Actions Required to Implement the Subsidy

What does a group health plan administrator have to do now?

A group health plan administrator must take all necessary actions to provide the 65 percent subsidy to AEIs beginning March 1, 2009. This generally means ensuring that an AEI is required only to pay the reduced COBRA premiums for periods of coverage beginning on or after March 1, 2009.

However, because it is likely that a plan administrator will not be able to make timely notification to all AEIs about the reduced amounts effective for March premium payments, AEIs may pay the full COBRA premiums for one or two months. If an AEI pays the full COBRA premium for the first or second period of coverage beginning after the date of enactment of the ARRA (i.e., periods of coverage for March and April 2009), the plan administrator must credit the subsidized portion of the premium against future COBRA premiums (if the plan administrator reasonably expects the overpayment to be fully applied to future COBRA premiums within 180 days) or refund the subsidized portion within 60 days.

What does a group health plan administrator have to do in the near future?

For any individual who becomes a COBRA qualified beneficiary after the enactment of the ARRA:

• The group health plan administrator must include with all other required COBRA election notices and forms specific information about the availability of the subsidy.
• The group health plan administrator must provide notices to two groups of AEIs within 60 days after the enactment of the ARRA.

The first notice must go to all AEIs who currently have COBRA continuation coverage to advise them of the availability of the subsidy and the requirements to qualify for the subsidy.

The second notice must go to any individual who is entitled to the special enrollment period (discussed below). An individual is eligible for this special enrollment period if the individual qualifies as an AEI except that the individual does not have a COBRA coverage election in effect on the date of enactment of the ARRA. (This includes an individual who previously made a COBRA coverage election but whose COBRA coverage ended before the enactment date because of non-payment of premiums.) The notice to these individuals must advise them of the availability of the subsidy, the requirements to qualify for the subsidy and additional information required by the ARRA, as well as provide them forms necessary for electing COBRA during the special election period.

The act requires the U.S. Department of Labor to provide model notices for plan administrators to use within 30 days after the enactment of the ARRA.

COBRA Coverage Period Extension

How does the ARRA extend the COBRA coverage period?

The act extends the initial COBRA coverage period for two distinct groups of COBRA qualified beneficiaries following a termination of employment or reduction in hours of a covered employee COBRA qualifying event:

1. If the covered employee has (as of the qualifying event date) a nonforfeitable right to receive any pension benefits directly from the Pension Benefit Guaranty Corp. (PBGC), the maximum COBRA coverage period for the covered employee ends on the covered employee's date of death. The maximum COBRA coverage period for the covered employee's surviving spouse or dependent children ends 24 months after the covered employee's date of death.
2. If the covered employee is a Trade Adjustment Assistance-eligible individual (as of the date COBRA coverage would otherwise end because of the regular 18-month or 36-month COBRA coverage periods), the maximum COBRA coverage period ends on the date the covered employee ceases to be a Trade Adjustment Assistance-eligible individual.

Is there a limit on these extended COBRA coverage periods?

Under the ARRA, a COBRA coverage period cannot be extended beyond Dec. 31, 2010 under either of the provisions above.

When do the extended COBRA coverage periods become effective?

These extensions to the maximum COBRA coverage periods for these groups of qualified beneficiaries apply to any COBRA coverage periods that would otherwise end on or after the date of enactment of the ARRA.

Conclusion

The new COBRA provisions established by the ARRA require employers and plan administrators to take prompt action and make quick decisions to implement new COBRA procedures. Some of these decisions and procedures include:

• Identifying all potential AEIs – employees who were covered by the group health plan whose employment was involuntarily terminated (other than for gross misconduct) beginning Sept. 1, 2008 (and their covered spouses and dependents) – and their last known addresses.
• Identify which of these individuals are AEIs currently receiving COBRA coverage and which are entitled to the special enrollment period.
• Adopting the method when developed by the Secretary of Treasury for permitting “high-income individuals” to waive the premium subsidy permanently.
• Determining the correct premium subsidy that applies to AEIs who are not being required to pay the maximum permissible COBRA premium.
• Developing a method for either applying the excess of any COBRA premiums above the 35 percent AEI portion received from an AEI for March and April 2009 COBRA premiums to future premiums or refunding the excess.
• Adjusting administrative procedures to reflect the maximum nine months of available COBRA premium subsidy and the maximum COBRA coverage period for AEIs who elect COBRA continuation coverage during the special enrollment period.
• Develop and provide the notices required by the ARRA (noting that the Department of Labor is to provide model notices within 30 days of the ARRA).
• Determine whether to implement the special coverage option for AEIs.
• Determine if any covered employee has a nonforfeitable right to receive pension benefits from the PBGC or is Trade Adjustment Assistance eligible and adjust administrative procedures to reflect the extended maximum COBRA continuation coverage period that may apply to the covered employee or the covered employee's surviving spouse and dependent children.

We encourage all employers and plan administrators to begin responding to these new rules immediately. Employers using a third party COBRA administrator should contact their COBRA administrator to coordinate a response.

Content From: The Society for Human Resource Management