This is an update to the previous white paper outlining the changes to COBRA as defined by the American Recovery and Reinvestment Act and the evolving implementation rules. Changes from the previous white paper are noted in red.
Current economic conditions and job losses are threatening health coverage for many families. To help workers maintain their health coverage between jobs, President Obama signed the American Recovery and Reinvestment Act (a.k.a. the Stimulus Bill) on February 17, 2009.
The Stimulus Bill provides subsidies for COBRA and mini-COBRA health insurance premiums for certain assistance eligible individuals who were involuntarily terminated (laid off, fired) and lost their group health coverage between September 1, 2008 and December 31, 2009, subject to certain income limits and other restrictions. In effect, the assistance eligible individual will pay 35% for the health insurance premium and the employer or carrier will pay the remaining 65% of the monthly health premium. The federal government will be subsidizing the 65 % employer contribution for groups of 20 or more through a payroll tax credit applied against quarterly federal payroll taxes. For groups of 2-19, State Continuation of Coverage (Mini Cobra) the carriers are going to be responsible for the 65% subsidy portion. The carriers are still reviewing its provisions and are working on implementation procedures; we expect the plans to be published shortly.
IMPORTANT: Employers should identify “Assistance Eligible Individuals” as soon as possible so the necessary actions can be taken.
The definition of qualified beneficiary includes:
• The covered employee
• The covered employee’s spouse (as defined by federal law), and
• The covered employee’s dependent children (as defined by the plan)
Guidance Pending
It is important to note that although the American Recovery and Reinvestment Act is now law, there is still important guidance forthcoming.
Cobra (groups of 20 or more)
Assistance Eligible Individuals (AEI) who involuntarily lost group coverage from September 1, 2008 through December 31, 2009 will now be eligible for the subsidy. An employee who lost coverage from September 1, 2008 through March 1, 2009 will need to receive a second notice of their subsidy rights from the employer and be given the opportunity to elect subsidized coverage effective March 1. This subsidy notice must be sent prior to April 17, 2009. Sample notices are available through the Department of Labor website at www.dol.gov/ebsa/COBRAmodelnotice.html
If the AEI elects the subsidized coverage the subsidy will last for nine (9) months or until the individual becomes eligible for a group health plan through a new employer, a spouse’s employer or Medicare.
The AEI will pay 35% of the premium to the former employer; the employer will remit their 65% as well as the former employee’s 35% to the carrier. The employer will get the tax credit when their quarterly 941’s are submitted, (revised 941’s are available on the www.irs.gov website). The employer should retain a copy of the separation notice, copy of the AEI’s premium check and carrier invoice for audit purposes.
State Continuation of Coverage/ Mini Cobra (groups of 2 – 19)
Massachusetts Employers - Assistance Eligible Individuals (AEI) who involuntarily lost group coverage AND subsequently elected coverage from September 1, 2008 through December 31, 2009 will now be eligible for the subsidy effective March 1, 2009. An employee who lost coverage from September 1, 2008 through March 1, 2009 will need to receive a second Continuation of Coverage notice of their subsidy rights. If a person lost group coverage and declined to elect continuation of coverage (or elected and subsequently cancelled the Continuation of Coverage), they will not be eligible for the subsidy; however assistance may be available through the Medical Security Program administered by the Massachusetts Department of Unemployment Assistance.
Although implementation is currently under development by the carriers, the spirit of the regulation will have the AEI pay the 35% of the premium to the carrier or designee and the carrier will front the employer’s 65%. The employer will not be eligible for a credit on their quarterly taxes. This process is underway and employer groups will be notified directly by the carrier regarding proper protocols.
If the AEI elects the subsidized coverage the subsidy will last for nine (9) months or until the individual becomes eligible for a group health plan through a new employer, a spouse’s employer or Medicare.
The employer should retain a copy of the separation notice and carrier invoice for audit purposes.
New Hampshire Employers – (variation of above) Assistance Eligible Individuals (AEI) who involuntarily lost group coverage from September 1, 2008 through December 31, 2009 will now be eligible for the subsidy. An employee who lost coverage from September 1, 2008 through March 1, 2009 will need to receive a second notice of their subsidy rights from the employer and be given the opportunity to elect subsidized coverage effective March 1. This subsidy notice must be sent prior to April 17, 2009. Sample notices are available through the Department of Labor website at www.dol.gov/ebsa/COBRAmodelnotice.html
Although implementation is currently under development by the carriers, the spirit of the regulation will have the AEI pay the 35% of the premium to the employer and the employer will forward to the carrier. The carrier invoice will only list the 35% due. The carrier will front the employer’s 65% and the employer will not be eligible for a credit on their quarterly taxes. This process is underway and employer groups will be notified directly by the carrier regarding proper protocols.
If the AEI elects the subsidized coverage the subsidy will last for nine (9) months or until the individual becomes eligible for a group health plan through a new employer, a spouse’s employer or Medicare.
The employer should retain a copy of the separation notice, copy of the AEI’s premium check and carrier invoice for audit purposes.
Penalties for the AEI
If an assistance eligible individual accepts the subsidy, but is eligible for other coverage tax penalties can apply. In addition,the amount of the premium reduction (65%) is recaptured for certain high income individuals. If the AEI gross earnings for the year is at least $125,000 (or $250,000 for married couples filing a joint Federal income tax return), all or part of the amount of the premium reduction (65%) may be recaptured by an increase in the AEI’s income tax liability for the year. If you think that your income may exceed the amounts above, consult your tax preparer or contact the IRS at www.irs.gov.
Resources
Department of Labor - www.dol.gov/ebsa/COBRAmodelnotice.html
Internal Revenue Service – www.irs.gov
Massachusetts Executive Office of Labor and Workforce Development - Medical Security Plan, call the plan directly at 1-800-908-8801, or visit www.mass.gov/dua/msp.
Anthem BC BS – www.anthem.com
Blue Cross Blue Shield – www.bcbsma.com
Fallon Community Health Plan – www.fchp.org
Harvard Pilgrim Health Care – www.hphc.org
Tufts Health Plan – www.tufts-health.com
Thomas Gregory Associates – www.thomasgregory.com