The temporary health benefits continuation subsidy helped some involuntarily terminated workers but came nowhere close to providing “universal coverage.”

Researchers at the Urban Institute, Washington, give that assessment in a review of the 65% federal COBRA group health continuation premium subsidy that Congress included in the in the American Recovery and Reinvestment Act (ARRA) of 2009. The subsidy expired May 31.

Before the subsidy took effect, workers had to pay 102% of the full cost of employer-sponsored health coverage to continue benefits. Now that the subsidy has expired, workers must once again pay 102% of the cost, rather than 35%.

The Urban Institute researchers say estimates of the effects of the COBRA subsidy on COBRA take-up rates vary, with Ceridian Corp., Minneapolis – a firm that manages benefits programs for a wide range of employers – reporting that take-up rates at client employers had increased to about 18%, from about 12%.

“Most of the before-and-after take-up rates presented above likely underestimate ARRA’s effects on its target population of job losers because they do not compare the same types of people before and after ARRA.

Enrollment figures from one benefits firm suggest that workers who signed up for COBRA when the subsidy was available might have been somewhat healthier than the workers who sign up for unsubsidized COBRA coverage, the researchers say.

The researchers found that federal efforts to promote the program were effective and that implementation seemed to go reasonably well, under the circumstances.

But the fact that studying the effects of the ARRA COBRA subsidy is so difficult suggests that implementing the Affordable Care Act, the health system change act that includes the Patient Protection and Affordable Care Act, might be more difficult than policymakers had expected, the researchers warn.

The COBRA subsidy program experience suggests that the secretary of the U.S. Department of Health and Human Services may have difficulty getting large amounts of new types of insurance information from employers and health benefits administrators, unless employers or administrators already are generating the data for private business purposes, the researchers say.

“Careful attention to the costs and benefits of new data requests or requirements should be paid in implementation, as it would be easy to create considerable political ‘push back’ for data elements that are not vital to effective early oversight of health plans,” the researchers say.

The COBRA subsidy program also has shown that policymakers will have to arrange for very high subsidies and very easy enrollment to enroll all or nearly all newly unemployed people, the researchers say.

“Interviewees from all perspectives agreed that even subsidized COBRA premiums are too high to help a great many potential enrollees,” the researchers say.

Even paying 35% of the full cost of health coverage is too much for many, the researchers say.

Encouraging high coverage continuation rates can help insurers as well as unemployed individuals, by minimizing the possible effects of adverse selection, the researchers say.

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Tags: COBRA Subsidy Expiration, COBRA Subsidy Reviews

COBRA health insurance premium subsidies would be extended and expanded under a new jobs bill being put together by Senate Majority Leader Harry Reid, D-Nev.

In its current version, the draft bill would extend the COBRA premium subsidy to involuntarily terminated employees another 10 months, so employees laid off through year-end would be eligible for the 65% subsidy for up to 15 months.

Without an extension, employees laid off after March 1 would not be eligible for the subsidy.

“There are people who are losing their jobs and they need the ability to buy insurance,” Sen. Reid said on the Senate floor Wednesday.

Separately, the Senate on Thursday may begin to consider H.R. 1586, which among other things, would extend the subsidy through March 28. That measure is considered a stopgap while federal lawmakers consider a longer extension.

“There is virtually no doubt that a longer extension will follow,” said Frank McArdle, a consultant with Hewitt Associates Inc. in Washington.

Sen. Reid’s draft bill also would allow employees who first lost group health insurance coverage due to a reduction in hours and then were involuntarily terminated to receive the COBRA premium subsidy, assuming certain conditions were met.

Other provisions in the draft bill would give employers more time to fund their pension plan obligations, something business groups have sought for more than a year. Without such relief, employers will face huge increases in contributions to their plans, which have been battered by low interest rates and the plunge in the equities markets.

It isn’t known when Sen. Reid will formally introduce the jobs bill. Previously, the Senate majority leader stripped the COBRA subsidy and other provisions from a prior jobs bill in favor of a more narrowly focused measure, which the Senate passed Wednesday. At the time, Sen. Reid said some of the provisions, like the COBRA subsidy, would be reinserted in a series of bills he would introduce at a later date.

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Tags: COBRA subsidy, COBRA Subsidy 2010, COBRA Subsidy Expansion, COBRA Subsidy Extension

President Obama has signed a bill that extends federal COBRA health insurance premium subsidies for the unemployed.

The Senate, in a rare Saturday session, passed H.R. 3326 on an 88-10 vote. The measure—a military spending bill that the House passed earlier last week—includes a provision that extends the nine-month, 65% premium federal subsidy by six months. The change applies to those who are involuntarily terminated through Feb. 28, 2010.

Previously, employees who lose their jobs after Dec. 31 would have been ineligible for the subsidy.

The legislation also provides another six months of subsidized coverage for beneficiaries whose nine-month COBRA premium subsidy has run out.

In addition, the legislation gives beneficiaries whose subsidy expired and who didn’t pay the full premium the opportunity to receive retroactive coverage. For example, a beneficiary whose nine months of subsidized coverage ran out Nov. 30 and who didn’t pay the unsubsidized premium for December could pay his or her 35% share in January and receive COBRA coverage for December.

The legislation also requires employers to notify current and future COBRA beneficiaries of the new 15-month premium subsidy.

The fate of the legislation has been followed closely by terminated workers—eager to know whether the subsidy will be extended—as well as employers who need to tell beneficiaries the COBRA premium they should pay.

The legislation makes clear that employers can offset future COBRA premiums or issue refund checks for beneficiaries who overpaid their COBRA premium. That could happen if a beneficiary whose subsidy ran out in November paid the full premium rather than the 35% share in December.

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Tags: COBRA Legislation Extension, COBRA stimulus, COBRA stimulus package, COBRA subsidy, COBRA Subsidy Expansion, COBRA Subsidy Extended, COBRA Subsidy Extension, Obama COBRA Subsidy

The American Recovery and Reinvestment Act of 2009 allows a credit against employment taxes for providing COBRA premium assistance to assistance-eligible individuals. As deadlines approach for employers to file their quarterly payroll taxes, groups may be asking about the process for reporting the COBRA and state continuation premium subsidies.

The 65 percent of the premium not paid by assistance-eligible individuals is reimbursed to the employer or other entity maintaining the group health plan. The federal government provides this reimbursement through a credit against employment tax liabilities.

Recent guidance from the IRS indicates that anyone claiming the credit for COBRA assistance payments must maintain the appropriate information to support their claim. Please note that employers who are not subject to COBRA are not responsible for claiming the subsidy. For groups for whom we are the COBRA administrator, all the necessary information has been included in your monthly premium reconciliation.

Information is available on the IRS Web site at www.irs.gov and in Publication 15 (Circular E), Employer’s Tax Guide.

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Tags: COBRA Employer Subsidy Credit, COBRA subsidy, COBRA Subsidy Employment Taxes, Employer Group COBRA Subsidy, The American Recovery and Reinvestment Act of 2009

Q1: What is the new COBRA subsidy provision contained in the stimulus package signed by the President?

The stimulus package, which was enacted as the American Recovery and Reinvestment Act of 2009 (ARRA) temporarily reduces the premium for COBRA coverage for eligible individuals. COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) allows certain people to extend employer-provided group health coverage, if they would otherwise lose the coverage due to certain events such as divorce or loss of a job.

Individuals who are eligible for COBRA coverage because of their own or a family member’s involuntary termination from employment that occurred from September 1, 2008 through December 31, 2009 and who elect COBRA, may be eligible to pay a reduced premium. Eligible individuals pay only 35% of the full COBRA premiums under their plans for up to 9 months. The employer (or other responsible entity) may recover the remaining 65% of the premium by taking the subsidy amount as a credit on its quarterly employment tax return. This premium reduction is generally available for continuation coverage under the Federal COBRA provisions, as well as for group health insurance coverage under state continuation coverage laws.

If the individual was offered Federal COBRA continuation coverage as a result of an involuntary termination of employment that occurred at any time from September 1, 2008 through Feburary 16, 2009, and that individual declined to take COBRA at that time, or elected COBRA and later discontinued it, he/she may have another opportunity to elect COBRA coverage and pay a reduced premium.
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Q2: What plans are subject to the premium reduction provisions?

The COBRA premium reduction provisions apply to all group health plans sponsored by private-sector employers or employee organizations (unions) subject to the COBRA rules under the Employee Retirement Income Security Act of 1974 (ERISA). They also apply to plans sponsored by State or local governments subject to the continuation provisions under the Public Health Service Act, and plans in the Federal Employee Health Benefits Program (FEHBP). The premium reduction is also available for group health insurance that is required by State law to provide comparable continuation coverage (such as “mini-COBRA”).
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Q3: Who is eligible to receive the COBRA premium reduction?

ARRA makes the premium reduction available for “assistance eligible individuals.” An Assistance Eligible Individual is a COBRA qualified beneficiary who meets the following requirements:
Is eligible for COBRA continuation coverage at any time during the period from September 1, 2008 through December 31, 2009;
Elects COBRA coverage (when first offered or during the additional election period provided by ARRA); and
The COBRA election opportunity relates to an involuntary termination of employment that occurred at some time from September 1, 2008 through December 31, 2009. However, if the individual is eligible for other group health coverage (such as through a new employer’s plan or a spouse’s plan) or Medicare he/she is not eligible for the premium reduction. If the employee’s termination of employment was for gross misconduct, the employee and any dependents generally would not qualify for COBRA or the premium reduction.

Electing the premium reduction disqualifies the individual for the Health Coverage Tax Credit. Additionally, certain high-income individual may have to repay the amount of the premium reduction through an increase in their income taxes. If the amount earned for the year is more than $125,000 (or $250,000 for married couples filing a joint federal income tax return), individuals may have to repay all or part of the premium reduction through an increase in their income tax liability for the year. For more information, visit the IRS web page on ARRA.
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Q4: Who is eligible for the second election opportunity for COBRA coverage?

Qualified beneficiaries whose qualifying event was an involuntary termination of employment during the period from September 1, 2008 through February 16, 2009 who did not elect COBRA when it was first offered OR who did elect COBRA but are no longer enrolled (for example, those who dropped COBRA coverage because they were unable to continue paying the premium) have a new, second election opportunity. Individuals eligible for the extended COBRA election period must receive a notice informing them of this opportunity. This notice must be provided by April 18, 2009 and individuals have 60 days after the notice is provided to elect COBRA. However, this special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee’s involuntary termination). COBRA coverage elected in this special election period begins with the first period of coverage beginning on or after February 17, 2009.

Under ARRA, this special election period opportunity is not required to be provided with respect to State continuation coverage that is provided pursuant to State insurance law. A State can take action, however, to provide an additional election period in its continuation coverage program for individuals involuntarily terminated from September 1, 2008 through February 16, 2009 in order for them to request premium assistance based upon involuntary termination occurring during that period. For more information on rights and responsibilities regarding election periods under State law, contact your State insurance commissioner’s office or CMS.

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Q5: Does ARRA impose any new notice requirements?

Yes, plans and issuers are required to notify qualified beneficiaries regarding the premium reduction and other information about their rights under ARRA as follows:
A general notice to all qualified beneficiaries, whether they are currently enrolled in COBRA coverage or not, who have a qualifying event during the period from September 1, 2008 through December 31, 2009. This notice may be provided separately or with the COBRA election notice following a COBRA qualifying event.
A notice of the extended COBRA election period to any Assistance Eligible Individual (or any individual who would be an Assistance Eligible Individual if a COBRA continuation coverage election were in effect); who had a qualifying event at any time from September 1, 2008 through February 16, 2009; and who either did not elect COBRA continuation coverage or who elected but subsequently discontinued COBRA. This notice must be provided within 60 days following February 17, 2009. Unless specifically modified by ARRA, the existing COBRA notice manner and timing requirements continue to apply.

Under the State programs, the issuer of the group health plan must provide the notice to qualified beneficiaries with the information on how to apply for the premium reduction. These notices must be provided within the time required by State law.
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Q6: What information must the notices include?

The notices must include the following information:
The forms necessary for establishing eligibility for the premium reduction;
Contact information for the plan administrator or other person maintaining relevant information in connection with the premium reduction;

• A description of the second election period (if applicable to the individual);
• A description of the requirement that the Assistance Eligible Individual notify the plan when he/she becomes eligible for coverage under another group health plan or Medicare and the penalty for failing to do so;
• A description of the right to receive the premium reduction and the conditions for entitlement; and
  If offered by the employer, a description of the option to enroll in a different coverage option available under the plan.

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Q7: Has the DOL developed model notices?

Yes. The Department of Labor has developed model notices that are available.
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Q8: Can employees currently enrolled in COBRA continuation coverage switch to a different coverage option offered by the plan?

Yes. Group health plans are permitted, but not required, to allow qualified beneficiaries to enroll in coverage that is different than the coverage they had at the time of the qualifying event. ARRA provides that changing coverage will not cause an individual to be ineligible for the COBRA premium reduction, provided that:
The premium for the different coverage is the same or lower than the coverage the individual had at the time of the qualifying event;
The different coverage is also offered to active employees; and
The different coverage is not limited to only dental coverage, vision coverage, counseling coverage, a flexible spending account, or an on-site medical clinic.
If the plan permits individuals to change coverage options, the plan must provide the individuals with a notice of their opportunity to change. Individuals have 90 days to elect to change their coverage after the notice is provided.
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Q9: If the employee is required to pay only 35% of the premium, how is the employer reimbursed for the remaining 65% of the premium?

The employer (or other responsible entity) may recover the subsidy provided to Assistance Eligible Individuals by taking the subsidy amount as a credit on its IRS Form 941 quarterly employment tax return.
For more information on the Form 941 credit and the tax provisions in ARRA, visit the IRS web site.
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Q10: Does the premium reduction apply to premiums paid for periods of coverage prior to enactment of the ARRA?

No. There is no premium reduction for premiums paid for periods of coverage prior to February 17, 2009.
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Q11: If a plan receives payment of 100 percent of the premium for coverage for March or April from an individual determined to be eligible for the premium reduction, what does the plan do with the overpayment?

If an individual meets the requirements of an Assistance Eligible Individual and pays 100 percent of the premium in March or April for coverage in those months, the overpayment can be applied as a credit toward subsequent premiums as long as it can be used within 180 days of the overpayment. Otherwise, the overpayment must be reimbursed to the individual within 60 days of receipt.
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Q12: If the employer denies the employee’s request for the premium reduction does the employee have appeal rights?

Yes. Individuals who are denied treatment as Assistance Eligible Individuals and thus denied eligibility for the premium reduction may request an expedited review of the denial. The Department of Labor will handle appeals related to private sector employer plans subject to ERISA’s COBRA provisions. The Department of Health and Human Services will handle appeals for Federal, State, and local governmental employees, as well as appeals related to group health insurance coverage provided pursuant to state continuation coverage laws. The Departments must make a determination within 15 business days of receipt of a completed request for review. The Department of Labor is currently developing a process and an official application form that will be required to be completed for appeals. The process will include obtaining information from the employer, plan or insurer where appropriate. There will be a very short turn around time for submission of this information due to the short time for the determination.

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Tags: ARRA, COBRA stimulus, Employer COBRA Stimulus FAQ

On March 9th, the Illinois Division of Insurance published revised information regarding the American Recovery and Reinvestment Act (ARRA) and how it affects groups that are subject to Illinois state continuation, but not subject to federal COBRA continuation. Specifically, Congress revised ARRA and gave states the opportunity to allow for the special extended election period, which was not previously an option for the states. Illinois has decided to allow for the extended election.

The change means that employers subject to Illinois State Continuation will have to follow all phases of the ARRA, including allowing ex-employees who were involuntarily termed between September 1, 2008 and February 17, 2009 the ability to elect Illinois state continuation. This change does not affect Illinois spousal continuation or Illinois dependent continuation.

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Tags: COBRA stimulus and small employers Illinois, COBRA stimulus package, Employers and American Recovery and Reinvestment Act of 2009, Illinois State continuation, Illinois state continuation and American Recovery and Reinvestment Act

The Department of Labor says it is working on guidance regarding the newly created subsidy for COBRA premiums.

The American Recovery and Reinvestment Act of 2009 (ARRA) provides for a 65 percent subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated, and for their families.

The subsidy terminates when the covered individual is offered any new employer-sponsored healthcare coverage or becomes eligible for Medicare. Workers who were involuntarily terminated on or after September 1, 2008, and before February 17, 2009, but failed to initially elect federal COBRA continuation coverage, have an additional 60 days to elect federal COBRA and receive the subsidy.

To qualify for the subsidy, individuals must meet all of the following requirements:

• Is eligible for COBRA continuation coverage at any time during the period beginning September 1, 2008 and ending December 31, 2009;
• Elects COBRA coverage (when first offered or during the additional election period), and
• Has a qualifying event for COBRA coverage that is the employee’s involuntary termination during the period beginning September 1, 2008 and ending December 31, 2009.

The ARRA provides that an assistance-eligible individual (AEI) is treated as having paid the full premium required for COBRA continuation coverage for a coverage period if the individual pays 35 percent of the premium. The subsidy program is effective for the first coverage period beginning on or after February 17, 2009. In most cases (plans with calendar month coverage periods), this will be March 1, 2009.

The legislation requires that information on the COBRA subsidy be included in COBRA notices. Under the legislation, the Department of Labor must create a model notice within 30 days of February 17, 2009.

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Tags: COBRA Recovery and Reinvestment Act laws, COBRA subsidy

The American Recovery and Reinvestment Act of 2009 signed into law February 17 expands COBRA in ways that will certainly impact employers. Most significantly, the act offers assistance-eligible individuals a 65 percent subsidy of their required COBRA premiums and an additional enrollment period within which to elect COBRA coverage.

Under the provision, the federal government will provide the subsidy for up to nine months for workers who lose health coverage as a result of being involuntarily terminated between September 1, 2008 and December 31, 2009 and who are eligible for COBRA coverage benefits, and their dependents.

The COBRA subsidy becomes applicable March 1. Assistance-eligible workers will receive a notice within 60 days of enactment that will outline the steps and requirements necessary to get the subsidy. We are awaiting government requirements for the forms and notices. These requirements are expected by mid-March. COBRA participants should pay their March premium as invoiced, and an adjustment will be made and the adjusted premium will be invoiced for future payments. The 65 percent subsidy will be applied retroactively, if applicable, from March 1.

Plan sponsors of all group health plans, multi-employer plans (and federal plans subject to comparable) COBRA laws will bear the brunt of administering the new provisions and will need to work closely with their COBRA administrators to ensure compliance. In addition, groups under 20 employees will also have responsibilities because the new subsidy is applicable to small groups and church plans covered by comparable state continuation laws.

On February 20, 2009, the Internal Revenue Service released a revised Form 941, the form for employers’ quarterly tax return on which employers report payroll taxes. Instructions for Form 941 were also revised. See lines 12, 12a, and 13 of Form 941 and pages 1, 2, and 6 of the instructions for directions for reporting credits to recover COBRA premium subsidies.

The Employee Benefit Security Administration (EBSA), the part of the Department of Labor (DOL) that administers federal labor laws regulating employee retirement and health plans, recently unveiled a Web site dedicated to the COBRA premium subsidy. No guidance is posted on the site yet, but it is anticipated that DOL guidance will be posted to the site as it is released.

The Department of Labor is required by H.R. 1 to conduct expedited reviews of denials of premium assistance (§ 3001(a)(5)). The Web site states that “The Department is currently developing a process and an official application form that will be required to be completed for appeals.”

The Web site also says that “EBSA is actively working to issue additional guidance regarding the COBRA premium reductions.” The Department of Labor is also responsible for developing a model notice for use by employers (§ 3001(a)(7)(D)) and outreach consisting of public education and enrollment assistance (§ 3001(a)(9)).

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Tags: American Recovery And Reinvestment Act Of 2009, Employer COBRA Stimulus, Employers and American Recovery and Reinvestment Act of 2009

Employers will have to scramble to comply with federal legislation providing a federal subsidy of COBRA health insurance premiums to laid-off employees.

Employees who were laid off from Sept. 1, 2008, through Dec. 31, 2009, will be eligible for a 65% federal subsidy of their COBRA premiums under provisions in the massive economic stimulus bill.

Beneficiaries would be entitled to the subsidy for up to nine months or until becoming eligible for coverage in another employer’s plan or for Medicare. The subsidy, though, would not be available to individuals with annual incomes exceeding $125,000 or couples with annual incomes exceeding $250,000.

The subsidy, estimated to cost the federal government nearly $25 billion, could help up to 7 million jobless individuals and their families maintain health care coverage, according to an estimate by the Joint Committee on Taxation.

With the subsidy resulting in beneficiaries paying about one-third of the COBRA premium that often has a monthly cost of about $400 for individual coverage and $1,200 for family coverage, employers with lots of laid-off employees should expect a surge in enrollees.

“The takeup rate is going to skyrocket,” said Andy Anderson, of counsel with law firm Morgan, Lewis & Bockius L.L.P. in Chicago.

COBRA often is a big money-loser for employers. Due to the high cost of coverage, those now opting for COBRA typically make extensive use or expect to use medical services. As a result, it is not uncommon for employers to pay out $1.50 in claims for every $1 in COBRA premiums they collect.

With the government picking up nearly two-thirds of the COBRA premium tab, the COBRA risk pool is certain to improve, though premiums collected by employers still are not likely to equal claims, experts say.

“Adverse selection, while perhaps not as great as before, still is going to be a problem,” said Paul Dennett, senior vp with the American Benefits Council in Washington.

A modest improvement in the premium-to-claims ratio is certain to be offset by the flood of new beneficiaries opting for coverage.

“At the end of the day, this is going to be very costly for employers,” said Mark Ugoretz, president of the ERISA Industry Committee in Washington.

The challenge for employers will be complying with the requirements that kick in almost immediately.

Under the legislation, the subsidies will be available starting March 1. That means employers will have to notify eligible beneficiaries of the change in what they have to pay for COBRA and send out new premium statements.

Some beneficiaries, unaware of the change in law, will overpay. Under the legislation, employers will have a choice initially of either providing a refund or a credit to be used against future payments.

Another big challenge for employers will be tracking down former employees laid off since Sept. 1, 2008, who declined COBRA coverage at the time. The legislation requires employers to notify those individuals that they have a new right to opt for subsidized COBRA coverage. The notice also has to spell out that beneficiaries have 60 days in which to opt for coverage.

In addition, employers will have to inform beneficiaries that their right to the subsidy will end when they become eligible for coverage from another employer. That is a change from nonsubsidized COBRA coverage in which COBRA eligibility ends only when beneficiaries actually enroll in a new employer’s health care plan or after 18 months of receiving the coverage.

Under the legislation, beneficiaries collecting subsidies they no longer are eligible for will be required to repay the government 110% of the subsidy they received.

Few, if any, pieces of legislation of this size—the cost of the stimulus package is nearly $800 billion—have moved through Congress so quickly. The legislation was introduced shortly after President Obama took office. President Obama, noting the deepening recession, said quick action was crucial and legislators responded.

While COBRA subsidies were part of earlier bills introduced in the House and Senate, the details changed along the way. The most significant change was congressional conferees dropping a provision—staunchly opposed by business groups—that would have allowed employees who worked 10 years for an employer and employees age 55 and older to retain COBRA until eligible for Medicare at age 65.

In addition, legislators fiddled until the last minute with the size of federal subsidy. In fact, a summary of the final agreement released by House Speaker Nancy Pelosi, D-Calif., said the premium subsidy would be 60%. A few hours later, a summary of the legislation prepared by the House Ways and Means Committee and the Senate Finance Committee said the premium subsidy was 65%, a sign of the 11th-hour tinkering by legislators.

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Tags: COBRA enrollees, Employers COBRA

Congress has passed the American Recovery and Reinvestment Act (“the Act”), and the Act has been signed by President Obama. This communication describes the provisions in the Act that affect COBRA continuation coverage and similar state continuation coverage.

Applicability and Effective Date
The COBRA changes affect both the federal COBRA provisions and the Public Health Service Act program that provides similar extension benefits for public programs. In addition, however, the subsidy provisions apply to state continuation coverage that is comparable to federal COBRA. That would include so-called “mini-COBRA” state laws that cover groups below the 20 employee threshold for COBRA. To be comparable, the state continuation law must allow the individual to continue substantially similar coverage as was provided under the group health plan at a monthly cost that is based on a specified percentage of the group health plan’s cost of providing such coverage. Reference to “COBRA” throughout this memo will also refer to the state programs that meet those requirements.

The Act is effective February 17, 2009, the day that President Obama signed the bill. All of the COBRA provisions that have a time frame will date from that day. As for calendar monthly billed programs, the effective date is March 1, 2009.

New Subsidy for COBRA Beneficiaries
The Act provides for a new subsidy for certain COBRA beneficiaries. The subsidy is 65% of the COBRA continuation coverage premiums for eligible individuals for up to 9 months. The COBRA beneficiary will pay only 35% of the overall COBRA premium for that period. The period expires on the earlier of (i) nine months, (ii) the date the individual becomes eligible for major medical group coverage or Medicare or (iii) the end of the maximum required period of continuation under COBRA. Further, the beneficiary must notify the employer in writing if they become eligible for coverage under a major medical group health plan or Medicare and is subject to significant penalties (110% of the subsidy amount) for failing to do so.

An individual who does not receive a subsidy that he/she believes appropriate may appeal the plan’s determination to the Department of Labor for private plans or to the Department of Health and Human Services for public plans covered under the Public Health Services Act. The relevant agency must rule on the appeal within 15 business days. Individuals whose appeal is denied may sue under ERISA.

Eligibility for the Subsidy – Timing
The subsidy is available to individuals (and their dependents) who were involuntarily terminated from their employment and became eligible for COBRA beginning September 1, 2008 through December 31, 2009. Persons who elected prior to the enactment of the Act (but on or after September 1, 2008) will be eligible to receive the subsidy prospectively from the date of enactment through the maximum nine-month period. Otherwise eligible persons who did not elect COBRA between September 1, 2008 and the date of enactment will have the opportunity to elect COBRA on a prospective basis with the maximum duration of the coverage dating from the date that they could have first elected COBRA. Employers or plans will have to provide notice to these groups of individuals. In addition, a group health plan or insurer must refund the individuals any COBRA premiums that subsidy-eligible persons paid on or after the date of enactment in excess of 35% of the premium. This may be in the form of a reimbursement payment or credit against future premium payments due.

Eligibility for the Subsidy – Income Test
The subsidy is adjusted based on income. Joint filers with $250,000 or more of modified adjusted gross income and all other filers with $125,000 or more of modified adjusted gross income are not eligible for the full subsidy. The subsidy is phased out completely for persons with modified adjusted gross incomes of $290,000 joint or $145,000 for other filers. The subsidy is not considered income as long as the beneficiary meets the income tests. Excess amounts of subsidy over the amount the person is entitled to by income will be added to the person’s tax on the person’s federal tax return. The employer will not have to be concerned about the taxable effect on COBRA beneficiaries although a COBRA beneficiary may request that the employer not provide any subsidy.

Mechanics of the Premium Subsidy
The Act requires that the relevant entity that is collecting the 35% premium simply not collect the remaining 65% and, instead, obtain reimbursement from the federal government. In cases of a multiemployer plan, a group health plan subject to federal COBRA and/or a self-funded employer, the plan or the employer that is collecting the premium will recoup the subsidy amounts through commensurate reductions in payroll taxes. For insured plans not subject to federal COBRA, where the insurer is collecting the premium, the insurance company will be entitled to the reimbursement through a corresponding credit to its own payroll taxes. In cases where the payroll taxes are not sufficient to cover the subsidy, the additional amount will be provided as a credit to the taxpayer as if it was an overpayment of payroll taxes. There are filings that payers receiving the subsidy must make with the Secretary of the Treasury.

Electing a Different COBRA Option
An employer may allow a COBRA-subsidy eligible individual to change his or her health insurance coverage option when making a COBRA election. The new plan option must be made within 90 days of receipt of the COBRA election notice, must have the same or lower premiums and must be available to non-COBRA active employees under the plan.

Notice Requirements and Election Period
Under the Act employers must provide modified election notices or provide separate supplemental notices to all persons who became entitled to elect COBRA continuation coverage during the period beginning on September 1, 2008 and ending on December 31, 2009.

The new forms would notify the individual about the subsidy and, if applicable, the right to change to different benefits options. The Department of Labor, Treasury and Health and Human Services are supposed to work together to provide a model notice within 30 days of enactment.

Notices are required to be sent to subsidy-eligible persons who became qualified beneficiaries before the date of enactment within 60 days of enactment. (The Act does not affect the timing of notices sent to individuals who become qualified beneficiaries on or after the date of enactment.) The election period for those beneficiaries who became eligible before the date of enactment will begin on the date of enactment and end 60 days after the date the plan administrator provides the required notice.

Failure to provide the notices would be a COBRA violation and subject to the standard COBRA penalties of up to $110 a day under ERISA. Additionally, there could be adverse tax consequences under the Internal Revenue Code, which can impose excise taxes of $100 per day per notice on the plan administrator.

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Tags: COBRA American Recovery and Reinvestment Act, COBRA Provisions, COBRA stimulus, COBRA stimulus package