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Follow-Up On COBRA Subsidy: What To Do Now?

March 23, 2009

This is the second in our series of WorkCites regarding the COBRA subsidy provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). (See our 2/17/09 edition). In this WorkCite, we will describe:

  • The new COBRA model notices that the Department of Labor (DOL) has recently released; and
  • A to-do list that plan sponsors might consider as they amend their COBRA programs to comply with the emerging new rules.

Notices

ARRA, which was signed by President Obama on February 17, 2009, requires the DOL to provide model notices to COBRA qualified beneficiaries by mid-March and requires employers (and in some cases insurers and multiemployer plans) to issue notices to certain qualified beneficiaries no later than April 18, 2009. Only qualified beneficiaries who were involuntarily terminated on or after September 1, 2008 and before December 31, 2009 are eligible to receive the COBRA subsidy under ARRA. However, as described below, the agencies responsible for implementing the federal subsidy have indicated that all qualified beneficiaries, not just those whose employment was terminated involuntarily, must receive the appropriate notice(s) during this period.

The DOL has issued four model notices, each of which is applicable to a different group of qualified beneficiaries:

  • General Notice (Full Version). To be sent to qualified beneficiaries who have not yet received a COBRA notice for a qualifying event between September 1, 2008 and December 31, 2009. This package includes COBRA election materials and subsidy information.
  • General Notice (Abbreviated Version). To be sent to qualified beneficiaries who are currently enrolled in COBRA coverage for a qualifying event that occurred on or after September 1, 2008. This package includes only COBRA subsidy information.
  • General Notice for Extended Election Periods. To be sent to the so-called “Second Chance” qualified beneficiaries — those who are or would be eligible for the federal subsidy under ARRA but who are not currently enrolled in COBRA coverage. This notice is for individuals who had a qualifying event on or after September 1, 2008 (and prior to February 17, 2009) and who either (a) waived COBRA coverage, or (b) elected COBRA coverage and have since terminated it. This package includes Second Chance COBRA election materials and subsidy information.
  • Alternative Notice. To be used by insurers in connection with plans that are subject to state health care continuation requirements for qualifying events between September 1, 2008 and December 31, 2009. This package includes COBRA election materials and subsidy information.

We expect that each plan sponsor will need to customize the model notices to comport with the design of the sponsor’s plan(s). For example, the model notices may be somewhat misleading where the employer provides a subsidy (distinct from the federal subsidy) of all or a portion of the qualified beneficiary’s cost of COBRA coverage. Also, the model forms fail to take into consideration certain common situations that would have an impact on a qualified beneficiary’s continued eligibility for, and the cost of, the federal subsidy.

Moreover, while qualified beneficiaries are required to declare that they qualify for the federal subsidy because they were involuntarily terminated, the model notice packets provided by the DOL do not contain any guidance on when a termination is involuntary. The packets also do not contain the appeal form for a terminated employee to submit to the DOL where he or she disputes the employer’s determination of ineligibility for federal subsidy. These items are still forthcoming from the IRS and the DOL, respectively.

To-Do List

So, the COBRA subsidy provisions are effect, and the model notices have been released by the DOL. Here is a practical list of actions that plan sponsors should be taking at this time:

  1. Identify all individuals who have become qualified beneficiaries under a health care plan since September 1, 2008.
  2. Tailor the notices, using the models released by the DOL, to reflect the terms of the plan and determine which notice(s) must be sent to each individual on the list in #1. Remember, the government has taken the position that all qualified beneficiaries, not just those whose employment was terminated involuntarily, must receive the appropriate notice(s).
  3. Distribute the appropriate notice(s) to the individuals listed in #1 no later than April 18, 2009.
  4. Determine who on the list in #1 has been involuntarily terminated since September 1, 2008.
  5. Determine how many plans are sponsored by the employer.
  6. For plans that are subject only to state mini-COBRA, confirm that the insurer will be responsible for distributing the notices and making the subsidy payments.
  7. Decide whether the employer can, and will, offer lower cost option(s) as described in the ARRA subsidy provisions; if so, what is the duration of the window?
  8. Communicate with payroll to establish a system to:
    • Modify the premium billing system;
    • Report receipt of qualified beneficiaries’ 35% premium payments;
    • Pay or provide for the 65% portion of the subsidy;
    • Take the payroll tax credit; and
    • Reconcile on IRS Form 941.
  9. Communicate with insurers, third-party administrators and other entities that help to administer COBRA programs:
    • Allocate responsibility for distributing notices and collecting records.
    • Determine who will maintain the records.
    • Determine what changes may be required to SPDs and SMMs and the entity responsible for preparing and approving such changes.
    • If the employer will offer the lower cost option(s), confirm with insurer or stop loss carrier that coverage will continue.
    • Coordinate the new requirements with existing COBRA practice to minimize the impact of necessary changes.
    • Determine whether qualified beneficiaries who overpay in March and April will be reimbursed or receive credit for the excess.
  10. If COBRA payments are currently subsidized by the employer (e.g., as part of severance packages or plans), consider revising the employer’s system to take advantage of the federal subsidy and credit.

We will publish future WorkCites on the COBRA subsidy program as the government publishes more information.

For additional information, please contact any member of the McGuireWoods Employee Benefits or Labor & Employment teams, or the authors. You can also visit our Stimulus Package section for more updates on the American Reinvestment and Recovery Act.

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