As we reported in a recent WorkCite article, the Temporary Extension Act of 2010 (TEA) extended and expanded the COBRA subsidy program that was introduced in the American Recovery and Reinvestment Act of 2009 (ARRA). As a result, the Department of Labor (DOL) has created a new set of five model notices to help plans and individuals comply with these revised requirements. Each model notice is designed for a specific group of qualified beneficiaries.
Why Should Employers Care
Most employers that sponsor plans have outsourced COBRA administration and rely on their third-party providers (TPAs) for compliance with the ever-evolving subsidy rules and their related notice requirements. However, plan sponsors still need to understand the basics of the TEA rules and notices.
We anticipate many plan sponsors will receive requests for additional data from their TPAs to enable the TPA to send the correct notice to each assistance eligible individual (AEI). Further, the Internal Revenue Code imposes penalties on plan sponsors, not TPAs, for non-compliance with the COBRA notice rules. The fact that the DOL has increased the number of model notices also expands the likelihood that many AEIs will receive no updated notice or an incorrect notice, creating potential liability for the plan sponsor. Thus, as a place to start, below is a primer on the five (5) COBRA subsidy notices and their eligible recipients:
Model General Notice
This notice applies to plans subject to federal COBRA provisions. It must be sent to AEIs who meet all of the following criteria:
- They are qualified beneficiaries (not just covered employees);
- They have experienced a qualifying event (regardless of the type of event) between September 1, 2008 and March 31, 2010; and
- They have not yet been given a COBRA election notice.
If an AEI who experienced a qualifying event that was a “termination of employment” on or after March 1, 2010 has not received a proper COBRA election notice, the AEI should be given the updated General Notice and a full 60-day election period starting on the date the updated notice is provided.
Model Notice of New Election Period
This notice applies to plans subject to continuation coverage provisions under either federal or state law. Within 60 days following termination of employment, it must be sent to AEIs who meet all of the following criteria:
- They have experienced a qualifying event that was a reduction in hours between September 1, 2008 and March 31, 2010;
- They have experienced a subsequent termination of employment between March 2, 2010 and March 31, 2010; and
- They either did not elect continuation coverage when it was first offered or elected coverage but subsequently discontinued it.
Model Supplemental Information Notice
This notice applies to plans subject to continuation coverage provisions under either federal or state law. It should be sent to all AEIs who elected and maintained continuation coverage based on the following qualifying events:
- A termination of employment that occurred on or after March 1, 2010 for which notice of the availability of the COBRA subsidy was not given; or
- A reduction of hours that occurred between September 1, 2008 and March 31, 2010 that was followed by a termination of employment between March 2, 2010 and March 31, 2010.
This notice must be sent within 60 days following the termination of employment. Where an AEI’s qualifying events occurred on or after March 1, 2010 and the AEI has not be given notice of the availability of the COBRA subsidy, this notice must be given before the end of the required time period for providing a COBRA election notice.
Model Notice of Extended Election Period
This notice applies to plans subject to continuation coverage provisions under either federal or state law. It must be sent to AEIs who meet all of the following criteria:
- They have experienced a qualifying event that was a termination of employment on or after March 1, 2010;
- They were provided a notice that did not inform them of their rights under ARRA, as amended by TEA; and
- They either chose not to elect COBRA continuation coverage at such time, or they elected COBRA coverage but subsequently discontinued it.
The notice must be sent before the end of the required time period for providing a COBRA election notice.
Model Alternative Notice
This notice applies only to insurers that offer group health insurance coverage subject to comparable continuation coverage requirements imposed by state law. Insurers must provide this notice to all qualified beneficiaries, not only covered employees, who experience a qualifying event through March 31, 2010. Further, the notice must be modified to reflect the requirements of applicable state law. Insurers subject to this notice requirement may use the appropriate model Alternative Notice, Notice of New Election Period, Supplemental Information Notice, Notice of Extended Election Period, or General Notice.
Employer Take-Away
We encourage plan sponsors to contact their COBRA TPA to determine whether:
- The TPA is abreast of the TEA modifications to the ARRA COBRA subsidy rules;
- The TPA is providing the new TEA notices to appropriate AEIs in a timely manner; and
- The TPA will agree to indemnify the employer for penalties and associated costs in the event of non-compliance with the revised COBRA subsidy rules.
It would also be helpful to ask the TPA whether it has sufficient information for each AEI to enable the TPA to distribute accurate COBRA subsidy notices.
For assistance in complying with the new COBRA subsidy rules, please contact the authors or any member of the McGuireWoods Employee Benefits and Labor and Employment teams.