On Tuesday February 17, 2009, President Obama signed the American Recovery and Reinvestment Act (“the Act”, i.e. the new stimulus bill) into law. The Act, which is budgeted at $789 billion, is designed to provide an economic stimulus to the ailing economy. The Act also includes the most significant changes to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) since its inception, and will require immediate action by employers and COBRA administrators. The following are some of the major changes to COBRA:
Generally
- The Act provides a subsidy of 65% of the COBRA continuation
premiums for eligible individuals for a maximum for 9 months, so that
an eligible individual will only have to pay 35% of the COBRA premium in
order to get coverage (as opposed to the current maximum 102% of cost)
- Employers are responsible for paying the 65% subsidized
portion of COBRA continuation payments, but will be reimbursed by
deducting the amount expended from payroll taxes that they submit to the
IRS the next pay period, or if necessary, directly reimbursed for
amounts expended
- The premium assistance period will be shorter than 9 months in certain circumstances, including if an individual becomes eligible for coverage under a major group health plan (such individual is required to notify the employer of eligibility for such other coverage, and will be subject to a penalty of 110% of the subsidy amount for failing to do so)
Eligibility
- An individual is eligible for the new COBRA premium subsidy
if he or she is involuntarily terminated from employment from September
1, 2008 through December 31, 2009 and is eligible to elect COBRA during
that time
- Individuals who elected COBRA due to an involuntary
termination on or after September 1, 2008 but prior to the date of the
Act’s enactment (March 1, 2009 for most plans) are eligible to receive
the subsidy on a prospective basis beginning on the date of enactment
- Individuals who were eligible to elect COBRA due to an
involuntary termination between September 1, 2008 and the Act’s
enactment (March 1, 2009 for most plans) but did not elect
COBRA must be given the opportunity to elect COBRA on a prospective
basis, with the maximum coverage period measured from the earliest date
that COBRA coverage could have been elected (Employers will have to
provide proper notice to such individuals, as described below)
- An eligible individual’s family members are also eligible for the premium subsidy under COBRA
- Individuals with modified adjusted gross income that exceeds $250,000 (for joint filers) or $125,000 (for all other filers) will not be eligible for the full premium subsidy. The premium subsidy will phase out for those individuals with an adjusted gross income of $145,000/$290,000. However, employers and insurers can treat all COBRA beneficiaries who have coverage due to involuntary termination during the applicable time period as eligible for the subsidy and receive reimbursement for the 65% of the premiums for coverage provided.
Effective Date
- COBRA’s provisions of the Act become generally effective
February 17, 2009 – the date President Obama signed the law into effect
- The 65% subsidy is effective for the first “period of
coverage” for assistance-eligible individuals beginning on or after
February 17, 2009 – which, for employers who bill COBRA premiums on a
monthly basis, will occur on and after March 1, 2009
- Since it will likely be impractical to reflect the new subsidy on bills for March 2009 COBRA coverage, the Act provides a two-billing cycle grace period to credit or refund overpaid COBRA premiums
Notice Requirements
- For individuals who became entitled to elect COBRA before
the date of enactment, the employer must provide additional notification
by April 18, 2009.
- Employers must modify COBRA election notices or provide
separate, supplemental notices to all individuals who become entitled to
elect COBRA continuation coverage from September 1, 2008 through
December 31, 2009 (After that date, the notices and tracking will have
to be changed again to comply with the previous rules)
- Such notices must describe:
- The availability of the 65% subsidy
- The ability to elect coverage even if an individual refused coverage prior to the Act
- How to elect the subsidy and, if applicable, the right to change coverage options
- Certain other information
- The notice can be incorporated into the regular COBRA election-rights package or provided through a separate notice that is sent along with the regular COBRA election-rights package
Failure by Employer to Provide Proper Notice to Eligible Employees
- Failure to send timely COBRA election notices to all
eligible individuals that complies with the new requirements could
subject the employer or plan to a penalty of up to $110 per day under
ERISA § 502(c)(1).
- Failure to comply with the new election notice requirements could also result in adverse tax consequences under § 4980B(b) of the Internal Revenue Code (i.e., excise taxes of $100 per day per notice for each day that the plan administrator fails to comply with COBRA ($200 if more than one qualified beneficiary in the same family is affected)), up to specified maximum amounts
Payroll Tax Offsets
- Employers will have to abide by a fairly comprehensive reporting scheme in order to claim the 65% subsidy, including, but not limited to:
- Attest to the involuntary termination of each assistance-eligible individual
- Report payroll taxes offset for the current period
- Report the taxpayers identification number (TIN) of each assistance-eligible individual
- Report the amount of subsidy received
- Report whether the subsidy covered one or more qualified beneficiaries
Appeals Procedure
- The Act provides that if an individual requests that the
group health plan treat the individual as eligible for the COBRA subsidy
and such request is denied, the individual may appeal the decision to
the Department of Labor (“DOL”), or to the Department of Health and
Human Services (“HHS”) pursuant to the Public Health Service Act. DOL
or HHS must rule on the appeal within 15 business days.
- If an appeal is denied by DOL or HHS, the individual could file suit under ERISA § 502(a)(3) for treatment as a subsidy-eligible individual
The Act’s COBRA provisions are comprehensive and will require additional COBRA administration. While there will be pressure to comply with the Act’s requirements, employers should be careful that they do not inadvertently restrict or overstate the number or assistance-eligible individuals.