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New Cobra Rules (April 24 2009)
- 1. May 21, 2009 The Job Show The American Recovery And Reinvestment Act Of 2009 The COBRA Premium Subsidy Presented by: John P. McMorrow, Esq.
- 10. DOES THE SUBSIDY CHANGE UNDER A COBRA PREMIUM COST SHARING ARRANGEMENT? Examples: Three Companies With Monthly COBRA Premiums Of $300 COBRA Premium Cost-Sharing / The Premium Assistance Subsidy Company A Company B Company C COBRA Premium Cost Sharing Qualified beneficiary pays $300 $100 $0 Company pays $0 $200 $300 The Premium Assistance Subsidy AEI pays a reduced COBRA premium $300 x 35% = $105 $100 x 35% = $35 $0 x 35% = $0 Employer claims a credit against its payroll tax liability $300 x 65% = $195 $100 x 65% = $65 $0 x 65% = $0
- 13. WHAT IS AN INVOLUNTARY TERMINATION? Involuntary Termination Not Involuntary Termination Employer does not renew employee’s contract, if employee is willing to sign a new contract. Death. Employer ends employment while employee is absent due to illness or disability. Absence due to illness or disability. Resignation or retirement, if employee knows that the employer will terminate his or her employment. Resignation or Retirement except when in lieu of termination/layoff. . Resignation due to employer-initiated reduction in hours if it’s a material negative change in the employment relationship. Reduction in hours except where employee resigns or where hours are reduced to zero. Layoff with right to recall, furlough or other suspension of employment. Work stoppage as a result of strike initiated by employees or union. Resignation due to a material change in employment geographic location. Voluntary acceptance of severance programs (buy-out) if additional terminations are likely after the buy-out election period ends
- 18. EXAMPLE - THREE HYPOTHETICAL WORKERS A B C Date of involuntary termination Sept. 1, 2008 Sept. 1, 2008 May 1, 2009 Eligible for COBRA subsidy Yes Yes Yes Elected COBRA upon termination Yes No Yes Entitled to new COBRA enrollment Already enrolled Yes Not applicable COBRA subsidy begins March 1, 2009 March 1, 2009 May 1, 2009 18-month COBRA period runs from Sept. 1, 2008 Sept. 1, 2008 May 1, 2009 COBRA subsidy ends not later than (may be earlier) Nov. 30, 2009 Nov. 30, 2009 Jan. 31, 2010 18-month COBRA period ends Feb. 28, 2010 Feb. 28, 2010 Oct. 31, 2010
- 25. SUBSIDY NOTICE DEADLINES FOR INDIVIDUALS BECOMING COBRA-ELIGIBLE FOR ANY REASON FROM SEPTEMBER 1, 2008 THROUGH DECEMBER 31, 2009 Subsidy notice deadlines for individuals becoming COBRA-eligible for any reason from September 1, 2008, through December 31, 2009 Individual first eligible to elect COBRA Subsidy notice due by Between Sept. 1, 2008 and Feb. 16, 2009 Assistance-eligible individuals with COBRA on February 17, 2009 April 18, 2009 without COBRA on February 17, 2009 (did not elect COBRA when first eligible or elected COBRA but dropped it before February 17, 2009) April 18, 2009 Individuals ineligible for assistance whose 44-day COBRA election notice distribution period HAS NOT ended End of applicable 44-day COBRA election notice distribution period whose 44-day COBRA election notice distribution period HAS ended DOL March 20 Guidance: With COBRA - April 18, 2009 Without COBRA - No notice due Between February 17, 2009 and December 31, 2009 End of applicable 44-day COBRA election notice distribution period
- 37. John P. McMorrow 508.929.1612 [email_address]
Hinweis der Redaktion
- The above definition of assistance eligible individuals raises questions about the treatment of individuals who are covered by COBRA coverage but who are not qualified beneficiaries. For example, assume that a covered employee gets married on or after the qualifying event and the new spouse is added to the COBRA coverage. Such new spouse is not a qualified beneficiary under COBRA and thus is not an assistance eligible individual. Does the subsidy only apply to the coverage of the covered employee? If so, this would require that the cost of the coverage be bifurcated into two parts—one related to the covered employee, which is eligible for the subsidy, and one related to the new spouse, which is not eligible for the subsidy. Similar issues arise when a domestic partner is covered by COBRA, since domestic partners are not qualified beneficiaries. The language of the statute would suggest that bifurcation is required but it is unclear if this was intended. Hopefully, Treasury and the IRS can provide guidance on this issue.
- The subsidy is available for up to nine months so long as the individual remains eligible to continue COBRA coverage, but will end earlier if the individual becomes eligible for any other group health plan coverage or Medicare. (Note that this is different from the COBRA early termination rule, which says COBRA ends if the individual becomes covered under other insurance or Medicare. Even though the individual may still be entitled to COBRA coverage, he or she will no longer be eligible for the subsidy once the other coverage is available.) It will not be readily apparent to AEIs who become eligible for an HRA as to whether or not the HRA disqualifies the AEI from the Subsidy. Employers who sponsor an HRA may wish to work with counsel/consultants to determine the status of their HRAs under Code Section 106(c) and provide notice to eligible employees regarding this status. Eligibility for the subsidy ends once someone becomes Medicare eligible (i.e., is receiving Social Security benefits or has applied for Medicare). This generally happens when an individual turns 65, receives a disability determination from the Social Security Administration or is diagnosed with permanent kidney failure (also known as end-stage renal disease).
- The definition of health flexible spending arrangement under Code Section 106(c) is sufficiently complex, and there is no easy way to explain it. As defined by Code Section 106(c), a “health flexible spending arrangement” is an arrangement where the maximum benefit that can be received is less than 500 percent of the value of such coverage. Thus, it will not be readily apparent to AEIs who become eligible for an HRA as to whether or not the HRA disqualifies the AEI from the Subsidy. Employers who sponsor an HRA may wish to work with counsel/consultants to determine the status of their HRAs under Code Section 106(c) and provide notice to eligible employees regarding this status.
- Coordination with third-party administrators as appropriate: Identify all qualified beneficiaries who experienced a qualifying event on or after September 1, 2008, so that notices about the Subsidy can be sent to them, which notice will need to include an offer to elect COBRA for Subsidy-eligible qualified beneficiaries who had not done so. The notice is required to be provided, within 60 days of February 17, 2009, to qualified beneficiaries with COBRA-qualifying events between September 1, 2008 and February 16, 2009. The Department of Labor has been directed to issue a model notice for this purpose. 2. Decide whether to permit Subsidy-eligible individuals who commence COBRA coverage to elect a lower-cost level of COBRA coverage, within 90 days of the notice described above having been sent (which notice should then include information about this election right). 3. Modify COBRA notices to be provided to qualified beneficiaries with COBRA-qualifying events between February 17, 2009 and December 31, 2009 to include information about the Subsidy. The Department of Labor has been directed to issue a model notice for this purpose. 4. Identify all employees who were involuntarily terminated on or after September 1, 2008, and accordingly lower COBRA premium bills as soon as practicable for Subsidy-eligible individuals. If bills go out before the Subsidy is reflected for all or part of the first two months of the Subsidy, determine whether to refund excess payments or apply excess payments to future COBRA premiums. 5. Modify payroll or other administrative systems appropriately to capture information regarding Subsidy-eligible individuals, in order to be able to determine whether individuals are eligible for the Subsidy, to bill appropriately, and to provide the required reporting when offsetting payroll tax payments and for purposes of tax reporting of the Subsidy. 6. Determine whether to modify any severance arrangements in light of the Subsidy.