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American Recovery and Reinvestment Act
COBRA Information and Questions and Answers
FREQUENTLY-ASKED QUESTIONS ON THE ARRA COBRA PROVISIONS
We are pleased to share information on the American Recovery and Reinvestment Act (ARRA) changes to COBRA to support our employers’ compliance with the recent changes.
As you are aware, ARRA, which was signed February 17, 2009 was effective the first billing period on or after that effective date.ARRA provides 65% subsidy for COBRA continuation premiums for up to 9 months for workers and their eligible family members who are affected by involuntary termination from September 1, 2008 through December 31, 2009.
In general, group health plans maintained by employers with 20 or more employees are
required by federal law to provide covered employees and covered dependents with the right to continue their health coverage after the occurrence of certain “qualifying events”. These qualifying events include, but are not limited to, termination of employment, divorce, or death of the covered employee. For employees who are involuntarily terminated from their jobs, ARRAprovides premium subsidies to help pay for the cost of continuing their health coverage.
We have attached answers to many of your questions that have come up since ARRA went into effect. Please understand that we will continue to provide additional information, guidance and support as more details are forthcoming from the Department of Labor (DOL) and the Internal Revenue Service.
EFFECTIVE DATE
PLANS TO WHICH THE ARRA SUBSIDY PROVISIONS APPLY
What plans does ARRA apply to?
ARRA covers all plans, both insured and self-funded, that are subject to COBRA and state and municipal plans that are subject to the Public Health Service Act which provides provisions parallel to that of COBRA. In addition, the subsidy applies to non-COBRA plans that are subject to state continuation laws that are comparable to COBRA.
The subsidy applies to COBRA premiums for medical coverage, including dental, vision and prescription. The subsidy does not apply to Flexible Spending Accounts.
Does this Apply to Employers with Fewer than 20 Employees?
Federal COBRA law does not apply to employers with fewer than 20 employees. Some states require employers with fewer than 20 employees to provide “COBRA-like” continuation of coverage plans. If these plans meet certain structural requirements for comparable continuation coverage, employees who are involuntarily terminated and are covered by these “COBRA-like” plans will also be eligible for Recovery Act premium subsidies.
Does ARRA affect State Continuation ?
ARRA impacts continuation coverage offered under state continuation to the extent such requirements are “comparable” to the federal COBRA standards.
How will we determine which state continuation laws are “comparable” to COBRA?
The Conference Committee report states that state continuation laws will be comparable to COBRA and eligible for the subsidy if the law requires continuation of substantially similar coverage as was provided under the group health plan and at a monthly cost that is based on a specified percentage of the group health plan’s cost of providing such coverage.
Do the ARRA provisions requireplans subject to state continuation to offer enrollment/the subsidyto those individuals who were eligible for state continuation prior to the 2/17/09 enactment date (but on or after September 1, 2008)?
No. While certain state continuation plans are eligible for the subsidy, the COBRA changes that allowassistance eligible individuals who did not previously elect (from September 1, 2008 through February 17, 2009)to elect coverage prospectively do not apply to comparable state continuation plans. Some states have already proposed legislation that would allow their continuation laws to mimic these enrollment options, but for the most part the subsidy will be available only to persons who are either covered as of March 1, 2009 by the state plan or who becomes eligible March 1, 2009 and after.
WHO IS ELIGIBLE
Who is an eligible individual?
An eligible individual is someone who is involuntarily terminated from employment during the period of September 1, 2008 through December 31, 2009 and is eligible to elect COBRA during that time.
Employees with modified adjusted gross income (MAGI) that exceeds $250,000 (for joint returns) or $125,000 (for all other filers) will not be eligible for the full premium subsidy. The premium subsidy will be fully phased out for those individuals with MAGI of $145,000/$290,000.
Individuals who exceed these income limits must repay any subsidy he/she realized. These repayments are reported on the individual’s income tax return.
Individuals may make a permanent election to waive the subsidy.
What does “involuntarily terminated” mean?
Persons who are involuntarily terminated from employment are eligible for the subsidy. This is not a term that is defined either in ARRA or in COBRA generally.We may assume that the COBRA ban on persons who were terminated for “gross negligence” would continue to operate and those persons would not have COBRA at all. However, anyone who is laid off, fired or otherwise dismissed from a job involuntarily during the applicable periods would likely be eligible. A reduction in hours, even if resulting in loss of coverage, would not trigger eligibility for the subsidy since it does not involve termination of employment.
Will UnitedHealthcare make any determinations about “involuntary termination”?
No. This is a determination that only the employer can make. If UnitedHealthcare is acting as COBRA administrator, it will not engage the subsidy for any COBRA participant unless the employer has certified, in a form acceptable to UnitedHealthcare, that the individual has been involuntarily terminated and therefore eligible for the subsidy.
Who isn’t eligible for the subsidy?
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Employees who were terminated for gross negligence are not eligible
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Employees who terminated voluntarily are not eligible
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Employees who were eligible for COBRA prior to 9/01/08 are not eligible
What about domestic partners?
Domestic partners are generally not recognized under COBRA.However, in some circumstances where the employer allows domestic partners to continue with the eligible employee, the presence of the domestic partner may have an impact on the cost of the coverage and the subsequent subsidy amount. For example, if the domestic couple has family coverage, it is clear that the intent of ARRA is to provide subsidy only for the employee, not the domestic partner. It is not clear how the premiums are to be bifurcated. This is an area where we hope to have further clarification from DOL or IRS.
What about dependents?
Dependents will be eligible for a subsidy of their own if they experience a second qualifying event during the subsidy period.For example, if a subsidy-eligible former employee divorces his or her spouse during the subsidy period, the divorced spouse will be independently eligible for the subsidy. The subsidy period in this case will date from the earliest subsidy trigger event, i.e., the employee’s involuntary termination.
How about dependent children who are no longer eligible based on their not being in school? Are they eligible for the subsidy?
No. Existing COBRA rules would apply. If the dependent ages out or is no longer eligible based upon school participation, he or she would not be eligible for the subsidy.
What does it mean to those individuals who are already on COBRA?
Individuals who were eligible to elect COBRA during the period beginning September 1, 2008 and ending December 31, 2009 due to an involuntary termination but did not elect COBRA will be given the opportunity to elect COBRA on a prospective basis. The maximum coverage period will still be measured from the earliest date that COBRA coverage could have been elected, but coverage will not be retroactive. The coverage would generally date from March 1, 2009.
What does it mean to those individuals who elected COBRA on or after September 1, 2008, but dropped it prior to enactment?
These individuals are entitled to elect COBRA during the period beginning on the date of enactment (2/17/09) and ending sixty (60) days after the date on which they are notified of the additional election period.
What is the true definition of involuntary? What about individuals on sick leave who ran out of sick leave and the employerletthem go because their FMLAis over? Will the government reimburse the employer?
The Department of Labor will be providing additional guidance. Ultimately the employer will need to make the decision. The key is that the employment relationship must end in order for the person to meet the standard set forth in ARRA. Therefore any situation where an employment relationship continues to exist will not qualify for the subsidy.
What rights are available to individuals who do not receive a subsidy, but believe they should have?
An individual who does not receive a subsidy that he/she believes appropriate may appeal the plan’s determination to the Department of Labor for private plans or to the Department of Health and Human Services for public plans covered under the Public Health Services Act. The relevant agency must rule on the appeal within 15 business days. Individuals whose appeal is denied may sue under ERISA
How will UnitedHealthcare know who is eligible for the subsidy?
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ligibility is in virtually all cases determined by the plan sponsor. We will require the plan sponsor or employer to let us know which of its terminated members is subsidy-eligible. This will mainly be through designating that person as “involuntarily terminated.” We will not attempt to determine this status on our own. If a person is not designated as such by the employer, we will not apply the subsidy when we are doing the COBRA billing.
How will the employer know if the beneficiary becomes eligible for other coverage?
The beneficiary must notify the employer in writing if they become eligible for coverage under a major medical group health plan or Medicare and is subject to significant penalties (110% of the subsidy amount) for failing to do so. The employer is not responsible for this notification.
Does an Employer have to determine the income of the subsidy recipient?
The subsidy is only available to otherwise eligible persons who meet certain income thresholds. However, that is not a concern of either the employer or the COBRA administrator; the eligible person is responsible for determining the taxable effect of the subsidy. If a person’s modified adjusted gross income (MAGI) makes him ineligible for the subsidy, the subsidy must be added to his tax liability. This would occur in the next year after the subsidy has been received. For example a person may be close the income threshold in 2009 but, being laid off, will not know exactly how much he will make in 2009. If, when doing his taxes in 2010, he finds out that his MAGI excludes him from eligibility, he will add the subsidy amount to his tax due. A person who knows that his MAGI will be too high to qualify for the subsidy may inform the subsidy payer of that fact and the payer will not include that person as subsidy eligible.
THE SUBSIDY
What is the ARRA COBRA subsidy?
It allows eligible individuals to receive a premium subsidy from the federal government in the amount of 65% of a COBRA qualified plan. Eligible individuals will only have to pay 35% of the COBRA premium to continue coverage.
How does the ARRA COBRA subsidy work?
The entity that pays the 65% subsidy (the multiemployer group health plan, employer or insurance carrier) is permitted to take the amount of any subsidy payments as an offset against their payroll tax payments to the federal government. The subsidy may be offset from employee income tax withholding, employee FICA tax withholding or employer FICA tax obligations.
The Internal Revenue Service (IRS) has released a revised Form 941 and Instructions
for reporting the amount of the premium subsidy that is taken as a payroll tax credit.
What amount is the subsidy based on? What is the beneficiary charged?
The subsidy is based on the actual amount that the employer is charging the eligible person for COBRA. This could be the full 102% of the plan cost allowed under COBRA in which case the subsidy would be 65% of that amount. For employers who subsidize COBRA coverage, the amount subject to the subsidy is the actual amount charged to the eligible person. For example, if the gross plan cost is $1000 per month but the employer is only charging the eligible person $500 per month, the subsidy is based on the $500 (that is, the eligible person pays $175 and the subsidy amount is $325).
When does the subsidy end?
The subsidy is effective for 9 months for COBRA beneficiaries who become eligible March 1, 2009 or through December 31, 2009 (including late-enrollers from September 1, 2008 on who will initially become eligible on March 1, 2009). Therefore the maximum extent of the subsidy for a person becoming eligible on December 1, 2009 would be through August 31, 2010.
The subsidy will otherwise end if the assistance-eligible person becomes eligible for coverage under a group health plan or becomes eligible for benefits under Medicare.
If the COBRA coverage ends for any reason listed under the COBRA statutory provisions ( e.g., continuation period ends by duration, coverage ends due to failure on the part of the assistance-eligible person to pay her share of the premium) the subsidy will also end.
FUNDING THE SUBSIDY
Does the subsidy apply to multiemployer group health plans or to the insurer providing coverage under an insured plan?
The responsibility to pay the 65% subsidy depends on the type of continuation coverage:
In the case of a multiemployer group health plan the subsidy is paid by the plan.
undefined undefined undefined undefined undefined undefined undefined undefinedIn the case of a group health plan subject to the federal COBRA requirements, the subsidy is paid by the employer.
In the case of continuation coverage offered pursuant to state requirements (where the coverage is comparable to COBRA), the subsidy is paid by the insurance carrier.
How does a multi-employer plan recover the subsidy?
Under ARRA the plan itself has the responsibility for the subsidy in COBRA-covered multi-employer plan. This could be a Taft-Hartley plan or any other plan that involves multiple employer participants but which represents a single ERISA plan. The plan would provide the subsidy and then file for the rebate of the subsidy on its own payroll tax liability.
What if the plan does not have any employees and therefore no payroll tax liability?
The IRS has not provided guidance on this point. IRS has revised the Form 941, the quarterly payroll tax return, to add the COBRA subsidy information on lines 12a and 12b. Absent further guidance, the plan would fill out the Form 941 and include the subsidy payment on line 12a. This would presumably show an overpayment if the plan had no other employment taxes, and this would be recorded on line 16. The plan representative would then check the “Send a Refund” box on line 16. The IRS would then provide a refund to the plan in the amount of the subsidy for that quarter.
Is a plan entity that has no employees and no assets required to front the subsidy?
Yes, the subsidy must be paid by the multiemployer plan when the eligible participants make their 35% payment. The reimbursement from the federal government is retroactive, so the plan must come up with the funds somehow.
NOTICE REQUIREMENTS
How will eligible individuals be notified of their right to the subsidy?
Under ARRA employers or their COBRA Administrator must provide modified election notices or provide separate supplemental notices to all persons who became entitled to elect COBRA continuation coverage during the period beginning on September 1, 2008 and ending on December 31, 2009.
When must the notices be provided?
Notices are required to be sent to persons who became qualified beneficiaries before the date of enactment (but on or after September 1, 2008) within 60 days of enactment (April 18, 2009). The election period for those beneficiaries who became eligible before the date of enactment will begin on the date of enactment and end 60 days after the date the plan administrator provides the required notice.
ARRA does not affect the timing of notices sent to individuals who become qualified beneficiaries on or after the date of enactment.
The information that I have is the COBRA subsidy would apply to those who involuntarily terminated but as faras the notice requirement, I've read some information that seems to indicate that we would be required to send notices to anyone who left?
ARRA requires communication to all individuals who had a qualifying event between 9/1/08 and12/31/09 - whether assistance eligible or not.For those clients for whom UnitedHealthcare administrates COBRA, we will issue these notices for both assistance eligibleand for those not assistance eligible who had a qualifying event per the requirements of the Act.
STATE CONTINUATION
Do the ARRA provisions require plans subject to state continuation to offer enrollment/the subsidyto those individuals who were eligible for state continuation prior to the 2/17/09 enactment date (but on or after September 1, 2008)?
No. While certain state continuation plans are eligible for the subsidy, the COBRA changes that allowassistance eligible individuals who did not previously elect (from September 1, 2008 through February 17, 2009)to elect coverage prospectively do not apply to comparable state continuation plans. Some states have already proposed legislation that would allow their continuation laws to mimic these enrollment options, but for the most part the subsidy will be available only to persons who are either covered as of March 1, 2009 by the state plan or who becomes eligible March 1, 2009 and after.
Do the ARRA provisions that allow employers to offer the special enrollment option impact plans that are subject to state continuation laws? No.The COBRA changes that allowassistance eligible individualsaccess to the optional special enrollment provision (where a member may elect a lower-cost plan) do not apply to comparable state continuation plans.
For small groups with fewer than 20 individuals, which are not subject to COBRA (only state continuation rules apply) Have you determined how it is going to be handled (the subsidy for thegroups withless than 20) that are not subject to COBRA that would only be subject to in state continuation rules.
We are reviewing all state continuation laws to determine which are comparable to COBRA. Further, there is a lot of activity at the state level to bring non-comparable state plans into line with COBRA so that the subsidy is available for that state’s non-COBRA beneficiaries. For those that aredetermined to be included within ARRA, UnitedHealthcare will handle the support for the subsidy including the collection of the 65% subsidy via reduction ofthe UnitedHealthcare payroll taxes as outlined in the act. |
