Employee Benefit Concepts, Inc.

The COBRA temporary premium assistance provision survived the House-Senate economic stimulus package compromise, while the permanent extension provision of COBRA for older or long-term employees was dropped.  Below we review the COBRA provision in The American Recovery and Reinvestment Act of 2009, which Obama is expected to sign on Tuesday. The COBRA provision raises procedural questions that the regulatory agencies will need to address.

The American Recovery and Reinvestment Act provides a 65% federal subsidy for up to 9 months of COBRA for individuals who became eligible for COBRA coverage from September 1, 2008 through December 31, 2009 due to involuntary termination of employment. The bill permits these COBRA individuals to satisfy their COBRA premium by paying only 35% of the premium. Plan sponsors are permitted to reduce their payroll taxes to offset the lower premiums paid by qualified beneficiaries. The bill creates a new special election period for those who have not elected COBRA and a new notice requirement to inform individuals about the opportunity to elect COBRA and receive a federal subsidy. The government is required to create a model notice for plan sponsors to use within a quick timeframe.

Who would be eligible for COBRA temporary premium assistance? Certain individuals who are eligible for COBRA coverage from September 1, 2008 through December 31, 2009 due to involuntary termination of employment that occurred during this period. Generally, premium subsidies are not available for individuals with annual incomes above $125,000 (single) or $250,000 (joint return). Subsidies are reduced for those with modified adjusted gross income up to $145,000 (single) and $290,000 (joint return). Temporary COBRA premium assistance applies to former covered employees, spouses and dependents.

When would the temporary premium assistance end? COBRA premium assistance would end on the first date that an individual is eligible for coverage under any group health plan or Medicare. Coverage under any group health plan does not include coverage consisting of only dental, vision, counseling, or referral services, coverage under a health reimbursement arrangement, or a health flexible spending arrangement, or coverage of treatment that is furnished in an on-site medical facility maintained by an employer and that consists primarily of first-aid services, prevention and wellness care. COBRA qualified beneficiaries receiving premium assistance must notify the group health plan in writing when they become eligible for other coverage, or face a penalty (110% of the premium reduction).

Even if a COBRA qualified beneficiary did not obtain other coverage of the type listed above, premium assistance would end the earliest of 9 months after the date of enactment of the stimulus package or at the end of the maximum period of continuation coverage.

Special COBRA Election Period - The Act creates a special COBRA election period for individuals who did not elect COBRA during their original election period that occurred sometime on or after September 1, 2008 or are currently in their COBRA election period and have not made the COBRA election as of the enactment date.This special COBRA election period begins with the enactment date of the law and ends 60 days after the notice of availability of premium assistance is provided by the plan sponsor. The enactment date of the law is the date Obama signs the legislation.

What is the effective date of COBRA coverage for former workers electing COBRA under the special COBRA election period?According to the Act, COBRA coverage will begin on the first period of coverage beginning on or after the enactment date of the law. The Act refers to a period of coverage as a period for which premiums are charged.

Length of COBRA - COBRA coverage will not extend beyond the COBRA period that would have been required if COBRA had been originally elected. For example: If a worker was laid off on September 1, 2008 and did not elect COBRA, this worker, if he elected COBRA under the special COBRA election period, would be entitled to COBRA for the remaining months left of the original 18-month qualifying event that occurred on September 1, 2008. COBRA coverage would not be retroactive to September 1, 2008.

Flexible Spending Accounts – COBRA premium assistance is not available for health flexible spending arrangements.

Reporting – Plan sponsors are required to submit reports to the Treasury detailing the amount of payroll taxes offset as well as estimated offsets for subsequent reporting periods.

Premium Assistance Reimbursement – The government subsidy is obtained through a reduction in payroll taxes. Any overstatement of the reimbursement will be treated as an underpayment of payroll taxes. The entity to whom COBRA premiums are payable is the entity entitled to the government reimbursement subsidy. In the case of a multi-employer plan, the entity entitled to the subsidy is the plan. In the case of any other group health plan, the entitled entity is the employer maintaining the plan.

Premium Subsidy Not Taxable – The premium assistance does NOT have to be included in the gross income of the COBRA qualified beneficiary.

Creditable Coverage - The law gives terminated workers some assistance in not triggering a 63-day break in coverage for HIPAA creditable coverage purposes. The time period beginning on the date of the qualifying event and ending with the day before the date of enactment of the Act will be disregarded for purposes of determining the 63-day break in coverage.

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