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Caring People. Shaping Futures.™ www.bcgcompany.com Legislative Update Changes to COBRA under the American Recovery and Reinvestment Act
Caring People. Shaping Futures.™
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Legislative Update
Changes to COBRA under the American Recovery and
Reinvestment Act
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• 2009 Legislative Outlook
• Quarterly Legislative Webinars
– Email [email protected] with your contact info to join our communication list.
• CPE Requests email [email protected]
• Introduction of the Presenters
Welcome
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COBRA provisions under the American Recovery & Reinvestment Act
Enacted February 17, 2009
Effective March 1, 2009
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• What Health Coverages are Affected?
• The COBRA Subsidy - Who is eligible? Length of coverage?
• The Second Chance COBRA Election Period
• Action Steps
Topics
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Overview
• The objective of the COBRA provisions of The Act is to provide a 65% government subsidy to qualified individuals for COBRA coverage for a limited period of time.
• The provisions impose a number of complex administrative requirements on employers, administrators and insurers.
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Who is Eligible for the Subsidy?
• Any employee or dependent who loses coverage under a group health plan (a “Qualified Beneficiary”) is eligible for a COBRA subsidy if they are entitled to COBRA as a result of the employee’s involuntarytermination of employment during the period beginning September 1, 2008 and ending December 31, 2009.
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What does “involuntary” mean?
• Laid off, downsized, fired: YES
• Quit, retired, leave of absence: NO
• The determining factor is: who initiated the termination – the employer or the employee?
• Further guidance is likely to be issued by the Treasury
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What Health Coverage Is Affected?
• All coverages ordinarily subject to federal COBRA law and any state “mini-COBRA” laws (i.e., state continuation laws applicable to employers with fewer than 20 employees).
• Fully insured and self-insured plans
Note – the subsidy is not available for Health FSA coverage
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The 65% Subsidy – Effective Date
• The subsidy begins with the Qualified Beneficiary's premium payment for the first period of coverage following enactment (March 1 or later).
• Neither the coverage nor the subsidy is retroactive to the date of termination.
• The subsidy is available for up to nine months of coverage.
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Losing eligibility for the subsidy
1. Becoming eligible for coverage under another group health plan or Medicare. For this purpose, “group health plan” does not include a
plan that provides only limited benefits, such as dental care, vision care, EAP, FSA, etc.
Coverage under a spouse’s plan will also disqualify the subsidy.
The QB is responsible for notifying the plan when other coverage becomes available, will be liable for 110% penalty.
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Losing eligibility for the subsidy
2. The subsidy starts to become taxable income when the QB’s AGI exceeds $125k (single) or $250k (joint return)
Fully taxable if earn more than 145k/290k
The recapture will occur when they file their tax return (so the employer is not responsible for monitoring this)
To avoid this recapture, individuals can permanently waive their right to the subsidy
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Losing eligibility for the subsidy
3. When COBRA ends in accordance with standard COBRA rules The coverage period expires (generally after 18
months)
The QB fails to pay premiums
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Who Pays What?
• The COBRA participant pays 35% of the required COBRA premium. (See next slide.)
• The employer will still pay the full cost of the coverage to the insurance carrier as usual.
• The employer is reimbursed the 65% subsidy by the government in the form of a reduction in their Federal payroll taxes. (Jessica will cover in further detail)
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What if …
… the employer pays part of the premium?
CAUTION:
The Act contains specific language that states if the QB’s required premium is something less than the actual cost of the plan, then the QB’s 35% is based on that “required premium”.
Therefore the employer’s 65% subsidy rebate is similarly limited to the lower required premium.
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What if …
• Since the employee is only required to pay $500 for his coverage, under the Act he would only have to pay $175 (35% of $500).
• The employer would only be entitled to a credit of $325(65% of $500) for this employee’s coverage, vs. the full $650 if the employee had been required to pay the entire premium.
… the employer pays part of the premium?
Say the employer agrees to pay 50% of the $1000 premium for 6 months in a severance agreement for a terminating employee.
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Offering COBRA with the Subsidy
There are two types of Qualified Beneficiaries who
would be offered COBRA with the 65% subsidy:
1. “First Chance QBs” are those who lose coverage by termination after 2/17/09.
Election notice must be provided in accordance with regular COBRA notice requirements (within 45 day of event)
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Offering COBRA with the Subsidy
2. “Second Chance QBs” who experienced the triggering event between 9/1/08 and 2/16/09
Must be offered to eligible QBs who originally declined COBRA coverage and to eligible QBs who elected and subsequently terminated COBRA coverage.
The Notice must be sent within 60 days of enactment (by 4/18/09).
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Second Chance Enrollees
• Coverage will commence with the first coverage period beginning after enactment (usually March 1).
• Coverage will end on the date coverage would otherwise have ended if the QB had timely elected COBRA coverage following the QB’s termination of employment (usually 18 months after coverage was lost).
• Example: Termination & loss of coverage was October 1, 2008 Second chance COBRA election & coverage effective March 1, 2009. COBRA coverage ends March 31, 2010 – 18 months after loss of coverage.
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Second Chance Enrollees
… thus, second-chance QBs do not have to elect and pay premiums retroactive to the loss of coverage. They can and will have a gap in coverage.
Special HIPAA rule: In this case, the period of time beginning with the qualifying event and ending on 3/1/09 will not be counted as a break in coverage for purposes of the 63-day pre-existing condition rule.
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Employer’s Action Plan
Identify all AEIs currently on COBRAThese are individuals who are QBs based on involuntary termination of covered employee's employment on or after September 1, 2008, who were eligible for COBRA coverage on or after September 1, 2008, who have elected COBRA coverage and whose COBRA election is currently in effect.
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Employer’s Action Plan
Identify all other QBs
• Who are or were eligible for COBRA by virtue of anyother Qualifying event between 9/1/08, and 2/16/09, who have not elected COBRA as of 2/17/09 or who elected but lost coverage. This includes spouses and children who were covered at the time of the qualifying event but are not covered now.
– they must receive a notice of the availability of the premium subsidy (EVEN THOUGH THEY ARE NOT ELIGIBLE).
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Action Plan
• Determine if you wish to wait on model notices or draft notices independently.
• Revise election notices if you choose not to wait on model notices.
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Action Plan
• Draft a Subsidy waiver form for highly compensated employees and an “attestation of eligibility” form for all individuals who will be entitled to the premium assistance.
• Revise HIPAA certificates of creditable coverage for those who take advantage of the special election period to reflect the fact that any gap between the date of the qualifying event and the date coverage begins is not considered a “gap” in coverage for purposes of HIPAA’s pre-existing condition rules.
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Action Plan
• Develop a procedure for QBs who pay more than 35% during the first two months – will you refund the excess or credit it against future premiums?
• Calculate the new premium structure to determine the employee’s 35% portion, and the amount of subsidy available through payroll offset. Additional guidance will be issued in the future regarding this process.
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Action Plan
• Review your plan documents, SPDs and related communication materials (e.g., online summaries) to determine what (if any) changes are necessary due to the Act.
• Find out from your payroll administrator how they can help you track and maintain the payroll information necessary to fulfill your notice obligations (amount of payroll taxes offset by the Subsidy, etc.).
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Action Plan
• Implement a procedure to send out notices when the premium assistance is about to be exhausted. Employers should notify QBs in advance of their COBRA premium increase after the subsidy runs out.
For example, such notice would be provided when the maximum nine month premium assistance period ends, or if the QB becomes eligible for other coverage under a group health plan or Medicare.
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Payroll Tax Advisement
Jessica Szydlowski
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Employer Reimbursement
• The employer must pay the premium in order to be eligible for the credit.
• The employer must receive the employee’s 35% portion of the premium.
• Employers can offset payroll tax deposits or claim the amount on their quarterly filing of Form 941.
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Employer Reimbursement
Changes to Form 941
• 12a COBRA premium assistance payments
• 12b Number of individuals provided COBRA premium assistance reported on line 12a
Visit www.bcgcompany.com for instructions and a copy of Form 941
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Employer Reimbursement
What happens if the payment results in an
overpayment of your payroll taxes?
• Credit applied to next quarter
• Overpayment can be refunded
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Employer Reimbursement
Required Supporting Documentation
• Receipt of employees’ 35% payment
• Copy of the invoice from the insurance carrier
• Declaration of employee’s involuntary termination
• Proof of eligibility for COBRA coverage
• A record of the employee’s SSN and how many individuals this subsidy covers
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Contact information
Jim Krosky, [email protected]
(330) 572-8049
Jessica Szydlowski
NEO Administration Company
330-864-0690
Q&A’s will be posted at www.bcgcompany.com
