The Temporary Extension Act extends the COBRA subsidy program that was enacted under the American Recovery and Reinvestment Act.

The law’s COBRA provisions:

• Extend the eligibility period for the 15-month 65 percent premium subsidy to those involuntarily terminated from March 1 through March 31, 2010.

• Allow employees to receive the subsidy if they first lost group coverage due to a reduction in hours and then were terminated after enactment of the bill.

The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.

The American Recovery and Reinvestment Act of 2009 (ARRA), as amended on December 19, 2009 by the Department of Defense Appropriations Act, 2010 (2010 DOD Act) provides for premium reductions for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly called COBRA. Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. To qualify, individuals must experience a COBRA qualifying event that is the involuntary termination of a covered employee’s employment. The involuntary termination must occur during the period that began September 1, 2008 and ends on February 28, 2010. The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.

What is COBRA?

COBRA gives workers and their families who lose their health benefits the right to purchase group health coverage provided by the plan under certain circumstances.

If the employer continues to offer a group health plan, the employee and his/her family can retain their group health coverage for up to 18 months by paying group rates. The COBRA premium may be higher than what the individual was paying while employed but generally the cost is lower than that for private, individual health insurance coverage.

The plan administrator must notify affected employees of their right to elect COBRA. The employee and his/her family each have 60 days to elect the COBRA coverage; otherwise, they lose all rights to COBRA benefits.

COBRA generally does not apply to plans sponsored by employers with fewer than 20 employees. Many States have similar requirements for insurance companies that provide coverage to small employers. The premium reduction is available for insurers covered by these State laws.

Changes Regarding COBRA Continuation Coverage Under ARRA, as amended by the 2010 DOD Act

The 2010 DOD Act extended the COBRA premium reduction eligibility period for two months until February 28, 2010 and increased the maximum period for receiving the subsidy for an additional six months (from nine to 15 months).

In addition, individuals who had reached the end of the reduced premium period before the legislation extended it to 15 months will have an extension of their grace period to pay the reduced premium. To continue their coverage they must pay the 35 percent of premium costs by February 17, 2010, or, if later, 30 days after notice of the extension is provided by their plan administrator.

Individuals who lost their subsidy and paid the full 100 percent premium in December 2009 should contact their plan administrator or employer sponsoring the plan to discuss a credit for future months of coverage or a reimbursement of the overpayment.

Eligibility for the Premium Reduction: The premium reduction for COBRA continuation coverage is available to “assistance eligible individuals”.

An “assistance eligible individual” is the employee or a member of his/her family who:

• has a qualifying event for continuation coverage under COBRA or a State law that provides comparable continuation coverage (for example, so-called “mini-COBRA” laws) that is the employee’s involuntary termination at any point from September 1, 2008 through February 28, 2010; and
• elects COBRA coverage timely.

Those who are eligible for other group health coverage (such as a spouse’s plan) or Medicare are not eligible for the premium reduction. There is no premium reduction for premiums paid for periods of coverage that began prior to February 17, 2009.

Assistance eligible individuals who pay 35 percent of their COBRA premium are treated as having paid the full amount. The premium reduction (65 percent of the full premium) is reimbursable to the employer, insurer or health plan as a credit against certain employment taxes.

Period of Coverage

The premium reduction applies to periods of coverage beginning on or after February 17, 2009. A period of coverage is a month or shorter period for which the plan charges a COBRA premium. The premium reduction for an individual ends upon eligibility for other group coverage (or Medicare), after 15 months of the reduction, or when the maximum period of COBRA coverage ends, whichever occurs first. Individuals paying reduced COBRA premiums must inform their plans if they become eligible for coverage under another group health plan or Medicare.

Notice Requirements

ARRA, as amended, mandates the provision of certain notices. As part of the COBRA election notice, plan administrators must provide information about the premium reduction to all individuals who have COBRA qualifying events from September 1, 2008 through February 28, 2010.

Plan administrators must also provide notice about the changes made to the premium reduction provisions of ARRA by the 2010 DOD Act to individuals who have already been provided a COBRA election notice (unless the election notice included the updated premium reduction information).

• Individuals who are “assistance eligible individuals” must be provided this notice by February 17, 2010;
• Individuals who experience a termination of employment on or after October 31, 2009 and lose health coverage must be provided this notice within the normal timeframes for providing continuation coverage notices; and
• Individuals who are in a “transition period” (a period that begins immediately after the end of the nine months of premium reduction in effect under ARRA before the amendments made by the 2010 DOD Act, as long as those nine months ended before December 19, 2009 and the premium reduction provisions of the 2010 DOD Act would apply due to the extension from nine to 15 months) must be provided this notice within 60 days of the first day of the transition period.

Expedited Review of Denials of Premium Reduction: Individuals who are denied treatment as assistance eligible individuals and thus are denied eligibility for the premium reduction (whether by their plan, employer or insurer) may request an expedited review of the denial by the U.S. Department of Labor. The Department must make a determination within 15 business days of receipt of a completed request for review. The official application form is available at www.dol.gov/COBRA and can be filed online or submitted by fax or mail.

Switching Benefit Options: If an employer offers additional coverage options to active employees, the employer may (but is not required to) allow assistance eligible individuals to switch the coverage options they had when they became eligible for COBRA. To retain eligibility for the ARRA premium reduction, the different coverage must have the same or lower premiums as the individual’s original coverage. The different coverage cannot be coverage that provides only dental, vision, a health flexible spending account, or coverage for treatment that is furnished in an on-site facility maintained by the employer.

Income limits: If an individual’s modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for joint filers), then the amount of the premium reduction during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), the amount of the premium reduction that must be repaid is reduced proportionately. Individuals may permanently waive the right to premium reduction but may not later obtain the premium reduction if their adjusted gross incomes end up below the limits. If you think that your income may exceed the amounts above, consult your tax preparer or contact the IRS at www.irs.gov.

This fact sheet has been developed by the U.S. Department of Labor, Employee Benefits Security Administration, Washington, DC 20210. It will be made available in alternate formats upon request: Voice phone: 202.693.8664; TTY: 202.501.3911. In addition, the information in this fact sheet constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.

Specifically, H.R. 3930 would extend the ARRA COBRA subsidy eligibility to those who are involuntarily terminated between January 1 and June 30, 2010 and extend the maximum period of assistance to 15 months. 

H.R. 3930 also includes a six-month extension of COBRA coverage. For individuals who are eligible for COBRA as a consequence of termination (or reduction in hours) of employment “occurring on or after April 1, 2008 and before January 1, 2010, if the maximum required period of COBRA continuation coverage is 18 months, such period is extended to 24 months.”  The Council is seeking clarification of this legislative language, however, as the time frame for eligibility for this six month extension is inconsistent with timeframes that appear in the introduction to the bill and other section headings. 

This measure could be included as part of comprehensive health care reform legislation, currently pending in both chambers of Congress or in legislation extending unemployment benefits and other expiring provisions of the stimulus legislation. H.R. 3200, the Affordable Health Care for America Act in the House already includes a provision extending the duration of COBRA coverage.

Since this is one of the most frequently asked questions to our call center, we thought it was worth highlighting it with this blog entry as follows:

It appears that the revised Form 941 provides in line 15 a place to identify your credit amount and note whether you want to apply the credit to the next return or to have the IRS send you a refund.

Specifically, Form 941 Instructions state on page 6, Item 15 Overpayment: “If line 13 is more than line 10, write the difference in line 15. Never make an entry in both lines 14 and 15.

If line 15 is under $1, we will send a refund or apply it to your next return only if you ask us in writing to do so.”

The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009.

The ARRA makes substantial, but temporary, changes to the rules governing the continuation of health coverage under COBRA and a number of other modifications affecting welfare benefit plans. BAS/CCS is working quickly to incorporate these changes into its processing, notification, billing, remittance, and reporting services.

Benefit Allocation Systems, Inc, (BAS) and Cobra Control Services, LLC (CCS) have begun to prepare to assist you with new notice, billing, and reporting requirements.

The ARRA aims to make health coverage more affordable for employees who lose their jobs by lowering the cost of COBRA coverage for many individuals. Any qualifying individual whose employment is involuntarily terminated between September 1, 2008, and December 31, 2009, and who is eligible for continuation coverage under COBRA because of the termination will be able to continue health coverage at only 35 percent of the ordinary COBRA premium for up to nine months.

Employers (and, in certain cases, insurers) will subsidize the remaining 65 percent, but have the right to recover the subsidy amount from the federal government through a credit on their payroll tax deposits.

Affected Plans. The new subsidy rules apply to plans that are subject to COBRA, certain federal government plans, and plans that are exempt from COBRA but subject to comparable requirements for health coverage continuation under state law. For convenience, this bulletin refers to the continuation of coverage under all of these plans as COBRA coverage. Health flexible spending arrangements provided through a cafeteria plan are exempt from the requirements.

Discount Period. The discount period begins with the first month of coverage after the ARRA is signed into law and lasts up to nine months, but may be shorter. The ARRA does not extend the maximum period of COBRA coverage beyond its ordinary expiration date. The discount will end when the COBRA coverage itself ends. In addition, the discount will end when an individual becomes eligible for coverage under Medicare or another group health plan (other than a plan that offers certain types of limited benefits, such as a dental plan or health flexible spending account). The ARRA applies penalties against individuals who fail to provide appropriate notice when they become eligible for other coverage.

Second Chance to Elect. Those who are eligible for the discount, but who did not previously elect COBRA coverage must be afforded a period of at least 60 days to elect continuation coverage. The coverage will be effective as of the first day of the month after the ARRA is signed into law (March 1). The maximum period for coverage will be measured from when it would have begun if COBRA had been elected when initially offered.

Notice Requirements. Plan administrators must modify or supplement the COBRA notices they provide when a qualifying event occurs. The notice must include specified information regarding the opportunity for a premium discount. Plan administrators must also alert those who have already elected COBRA and those who are eligible for the discount but have not elected COBRA, of their rights under the ARRA. This notice must be provided within 60 days after the ARRA is signed. The government is required to issue model notices within 30 days of that signature.

This posting is brought to you by Benefit Allocation Systems, Inc. and COBRA Control Services, LLC. The information contained herein is for informational purposes only and is not intended as legal advice, nor is it intended to advise you of your obligations under the American Recovery and Reinvestment Act of 2009.

Let us know what your think.

We will be distributing our summary of this Bill’s affect on COBRA, as we prepare to assist our clients with complete services for notices, premium billing, premium collections, premium remittance and compliance reporting, in accordance with this landmark legislation.

Significant changes are coming to COBRA administration. Currently, the House H.R. 598 and Senate S. 29 are considering proposals that would subsidize coverage and expand the amount of coverage available for older and long-tenured employees. These changes will likely require more complex COBRA administration and updates to initial rights notices, qualifying event notices, and premium collection processes.

Once the COBRA legislation is finalized, Cobra Control Services, LLC will offer free webinars on the COBRA changes and offer detailed guidance for employers.

Highlights of the legislation affecting COBRA include:

 ·         Premium assistance (65 percent of the COBRA premium) for up to 12 months for those who elected COBRA from September 1, 2008, through December 31, 2009. This would apply only to involuntary employment terminations (for reasons other than gross misconduct). The employer would pay this subsidy to the carrier (for fully insured plans) or absorb the subsidy (for self-funded plans) and receive credit for it through reduced payroll taxes.

·         A new 60-day election period would exist for those who did not elect coverage during that time.

·         New notice requirements would take effect.

·         Expanded COBRA coverage would be in place for employment termination or reduction of hours of employment qualifying events for employees who are at least age 55 or had 10 or more years of service. This coverage could continue beyond 18 months until any other termination reason occurs (e.g., Medicare entitlement, failure to pay).

These provisions could significantly increase the percentage of beneficiaries opting for coverage

Cobra Control Services, LLC has begun preparing for these changes on behalf of its COBRA administration clients. We expect the bill could reach President Obama’s desk within the next 15 days.

We will keep you apprised as this legislation’s progresses. For more information, you may contact us at info@cobracontrol.com or 888-887-6187.