In December 2009, we published a WorkCite article detailing the extension and broadening of the COBRA subsidy program mandated under federal law. As a follow-up, this edition describes the specific provisions contained in the Department of Defense Appropriations Act, 2010 (DOD Act), that:
- Extend the current COBRA subsidy program for two additional months through the end of February 2010, and
- Expand the COBRA subsidy program’s original nine-month subsidy period for an additional six months, providing subsidy recipients with a total of up to 15 months of premium assistance.
Background
The COBRA subsidy program was created in February 2009 with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA) in response to ballooning workforce reductions related to the 2008 and 2009 economic downturn.
In order to comply with the DOD Act, employers will need to revise the COBRA notices they are currently distributing to “assistance eligible individuals” (AEIs) to ensure that the notices accurately reflect the revised terms of the COBRA subsidy program. Also, some AEIs who have already received program notices will be entitled to receive revised or supplemental program notices detailing the modified terms of the COBRA subsidy program.
In an effort to assist employers in fulfilling these compliance efforts, the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) has released three revised model notices that reflect the terms of the ARRA COBRA subsidy program, as modified by the DOD Act. These revised model notices, along with additional interpretive and compliance-related materials, are available on EBSA’s website.
Which AEIs Are Affected?
The new COBRA subsidy rules require employers to identify those AEIs who were assistance-eligible under the prior ARRA rules and who fall into one of the following categories:
- AEIs who terminated COBRA coverage when their ARRA COBRA subsidy expired.
- AEIs who continued their COBRA coverage on the expiration of their ARRA COBRA subsidy eligibility by paying the full, unsubsidized COBRA premium.
The employer must treat these AEIs as eligible for the extended period of COBRA coverage provided by the DOD Act. This will require employers to take the following corrective actions:
- For the first group – AEIs who terminated their COBRA coverage on the expiration of their ARRA subsidy program eligibility – the employer must provide AEIs with an opportunity to elect the additional COBRA subsidy coverage by paying the subsidized COBRA premium retroactive to the date of their ARRA COBRA subsidy expiration. Thus, the AEI must pay the reduced premium amount for the entire period since the lapse of COBRA coverage on or before February17, 2010 (or, if later, within 30 days of receiving a revised notice of rights under the law).
- For the second group – AEIs who continued participating in COBRA after the expiration of their ARRA subsidy program eligibility by paying the full COBRA premium – the employer must reimburse the AEI for 65% of each COBRA premium the AEI has paid, reflecting the amount of the ongoing COBRA subsidy. To accomplish this, employers may either (1) make a reimbursement payment equal to the excess portion of the COBRA premium that the AEI has paid; or (2) offer the AEI an account credit to be applied against future premiums, provided that it is reasonable to believe that the credit will be exhausted within 180 days.
AEIs who never entered the COBRA program and those whose COBRA coverage terminated prior to the expiration of their subsidy period are not affected by the new DOD Act rules.
Which Notice Applies to Which Group of AEIs?
- The Updated General Notice should be provided to:
- AEIs who experienced a qualifying event any time from September 1, 2008 through February 28, 2010 and who have not been given a prior election notice; and
- AEIs who (a) experienced a qualifying event in December 2009, (b) were ineligible for COBRA coverage until January 2010, and (c) have not been given the Updated General Notice. The DOL points out that these AEIs should also be afforded the full 60-day election period detailed in the model notice.
- The Premium Assistance Extension Notice should be provided to:
- AEIs who were receiving COBRA premium assistance on October 31, 2009 (including those who had received the full nine months of premium assistance under ARRA), whether or not they have continued to pay premiums after that date, and
- AEIs who experience a qualifying event any time from October 31, 2009 through February 28, 2010, whether or not an ARRA COBRA election notice was already provided to them.
The Premium Assistance Extension Notice details the DOD Act’s modification of the ARRA COBRA subsidy program and provides affected AEIs with a revised election form for COBRA subsidy program enrollment or for modification of a prior enrollment (if necessary).
- The Updated Alternative Notice is available to insurance providers (rather than private employers) that issue group health insurance coverage and should be provided to:
- Individuals who are (or were) eligible for continuation coverage under a state mini-COBRA law. Prior to distribution, the notice should be modified from EBSA’s model notice to comply with applicable state law requirements.
When Must the Notices Be Sent?
Although plan administrators are ultimately responsible for the distribution of the Premium Assistance Extension Notice, compliance with the updated notice requirements necessarily requires coordination between the employer and each plan administrator (to the extent a plan is administered externally).
- The Updated General Notice is distributed following an employee’s termination (the “qualifying event”). After the qualifying event occurs, the employer must notify the plan administrator of the occurrence within 30 days. Thereafter, within 14 days, the plan administrator must distribute the notice to the affected employee and each of the employee’s qualified beneficiaries. If the employer also serves as the plan administrator, it has the full 44-day period to complete the distribution.
- The Premium Assistance Extension Notice must be distributed no later than February 17, 2010 to all individuals who were AEIs as of October 31, 2009 (unless they were in a “transition period”, as defined below) and to AEIs who experienced a termination of employment on or after October 31, 2009 and lost health coverage. If an AEI is in a transition period, the notice must be distributed within the first 60 days of the period. A transition period is defined as the period immediately following the end of the maximum number of months (generally nine) of premium reduction available under ARRA (prior to the DOD Act modifications). An individual is in a transition period if the premium reduction provisions of the COBRA subsidy program would continue to apply to the individual because of the DOD Act’s extension of the subsidy period from nine to 15 months, so long as the individual continues to remain eligible for the premium reduction.
- The Updated Alternative Notice must be distributed by insurance providers in accordance with the timing requirements detailed within applicable state laws.
Note: To some extent, the groups listed above overlap, creating a situation where an AEI might be entitled to multiple notices. Providing the Premium Assistance Extension Notice to the AEI by the earliest date required will satisfy the notice requirement(s).
Is This the End of the COBRA Subsidy Program?
Not likely. The Senate is scheduled to review the Jobs for Main Street Act of 2010 (the Jobs Act). If enacted, the Jobs Act would:
- Further expand the COBRA subsidy program class through the end of June 2010.
- Expand the class of employees who are eligible for assistance to include certain employees who lose group health plan coverage due to a reduction in hours that is followed by an involuntary termination of employment.
- Clarify that retiree health coverage does not automatically disqualify an individual from eligibility for a COBRA subsidy.
- Minimize the risk of payroll tax liability for employers that make an incorrect determination regarding an AEI’s eligibility for the COBRA subsidy in certain events by providing a safe harbor for those employers that maintain proper documentation and jump through additional hoops.
We will publish future WorkCite articles related to the extension or modification of the COBRA subsidy program as the government publishes further information.
For additional information, please contact any member of the McGuireWoods Employee Benefits or Labor & Employment teams, or the individuals listed below. You can also visit our Stimulus Package section of our website for more updates on the American Reinvestment and Recovery Act.