In response to the federal American Recovery and Reinvestment Act (ARRA) of 2009, the federal Department of Labor (DOL) released additional guidance on the new model notices that employers can use to comply with ARRA's premium assistance requirements under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA). In addition, the federal Internal Revenue Service released ARRA COBRA guidance that specifically addresses issues related to involuntary termination of ARRA assistance eligible individuals.
On March 19, 2009, the DOL released four model COBRA notices of subsidized health care coverage under the Consolidated Omnibus Budget Reconciliation Act. The batch of notices included two versions of a general notice (full and abbreviated), an alternative notice, and a notice in connection with extended election periods. On April 2, 2009, the DOL released expanded guidance in the form of frequently asked questions on the model notices. The expanded FAQs address who should receive or send which particular notices, in addition to other questions.
Background: The American Recovery and Reinvestment Act (Pub. L. No. 111-5) included a COBRA provision that authorized a 65 percent federal subsidy for continuing health care coverage under COBRA for employees who were involuntarily terminated between September 1, 2008, and December 31, 2009.
The law allows those claiming the subsidy, known as assistance eligible individuals (AEIs), to pay only 35 percent of the full COBRA premiums under their plans for up to nine months. The employer or other responsible entity, such as the health plan issuer, may recover the remaining 65 percent of the premium by taking the subsidy amount as a credit on its quarterly employment tax return.
ARRA also mandated the department to issue the model notices within two months of the law's passage, that is, two months after February 17.
The department said plans subject to the federal COBRA provisions must send the full version of the general notice to individuals meeting all the following criteria:
Qualified beneficiaries (not just covered employees);
Individuals who experienced a qualifying event at any time from September 1, 2008, through December 31, 2009, regardless of the type of qualifying event; and
Individuals who have not yet been provided an election notice, or who were provided an election notice, or who were provided an election notice on or after February 17, 2009, that did not include the additional information required by ARRA.
Expanded GuidanceThe FAQs clarify that a qualified beneficiary whose qualifying event was divorce, aging out of dependent coverage, or voluntary termination of employment, would still be entitled to the general notice. AEIs get the same general notice, but they are only the individuals eligible for the COBRA subsidy.
The abbreviated general notice contains the same information as the full general notice regarding the availability of the premium reduction and other rights under ARRA, the department said. However, the abbreviated version does not include COBRA coverage election information and may be sent in lieu of the full version to individuals who:
Experienced a qualifying event on or after September 1, 2008,
Already elected COBRA coverage, and
Currently have COBRA coverage.
The Labor Department said states may determine separate continuation coverage requirements for health insurance issuers. Health insurance issuers that provide group health insurance coverage comparable to COBRA should send the alternative notice to individuals covered by state-mandated continuation coverage laws (including mini-COBRA laws). Continuation coverage requirements vary among states, the department said. Therefore, issuers should conform these notices to applicable state law, it added.
ARRA gave “second chance” rights to AEIs who were involuntarily terminated after September 1, 2008, and either did not elect COBRA or may already have dropped out of COBRA coverage because of a failure to pay their premiums. The window for second chance individuals to elect coverage under COBRA runs for 60 days after receipt of notification regarding the second-chance opportunity.
IRS Releases Guidance on Premium Assistance and Definition of Involuntary TerminationThe Internal Revenue Service March 31, 2009, released Notice 2009-27 providing guidance in question-and-answer form on the premium subsidy available for continued health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1986.
The notice stated that the amount of any premium reduction is excluded from an individual's gross income under tax code Section 139C, which was added by ARRA. For purposes of determining the gross income of the employer and any welfare benefit plan of which the group health plan is a part, the amount of the premium reduction is intended to be treated as an employee contribution to the group health plan, the notice said.
IRS said that under ARRA the “person to whom premiums are payable” is based on the nature of the plan and which COBRA continuation coverage provisions apply. For example, in the case of a group health plan that is a multiemployer plan, the multiemployer plan is allowed a credit against its payroll tax liabilities as reimbursement for the 65 percent of the premium that is not paid by the assistance eligible individual.
Where a group health plan is subject to COBRA requirements or the temporary continuation coverage requirements under the Federal Employees Health Benefit Plan, or a group health plan under which some or all of the coverage is not provided by insurance, the employer is entitled to the credit.
For any other group health plan subject to ARRA—generally, fully insured coverage subject to state continuation coverage requirements—the insurer providing coverage under the group health plan is allowed the credit, according to the notice.
The notice provides 58 questions and answers, divided into the broad topics the IRS has addressed in dealing with the COBRA subsidy.
For example, the notice stated that an involuntary termination includes an employer's failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services.
In addition, an employee-initiated termination from employment constitutes an involuntary termination if the termination was due to employer action that caused a material negative change in the employment relationship for the employee.
Your friendly neighborhood accountant,
Patrice Blankenship
847.485.8565
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