The COBRA Changes in the American
Recovery and Reinvestment Act of 2009
COBRA Changes in the ARRA
The American Recovery
and Reinvestment Act of
dR i t tA t f
2009 (H R 1)
COBRA Administration Changes
M h 2009
Kenneth A. Mason
Partner, Spencer, Fane, Britt, & Browne, LLP.
Robert A. Meyers, Jr.
President & CEO, COBRAGuard, Inc.
Michael S. Gallagher
VP, National Accounts, COBRAGuard, Inc.
American Recovery and Reinvestment Act (ARRA)
provides federal subsidy equal to 65% of COBRA
premiums for involuntarily terminated employees.
Subsidy will be available for up to 9 months.
ARRA enacted on February 17, 2009, with the
subsidy generally available as of March 1, 2009.
Employees terminated as l
El i d long ago as SSeptember 1
2008, will be eligible for the subsidy, which will
require the p
q provision of retroactive notices to these
ELIGIBILITY FOR SUBSIDY
Employees involuntarily terminated between September 1,
2008, and December 31, 2009.
Must be eligible for -- and elect -- COBRA coverage (or similar
state-law continuation coverage, if employer has fewer than
Subsidy also available to terminated employees’ covered
Subsidy phased out for employees with adjusted gross
incomes of $125,000 to $145,000 ($250,000 to $290,000 if
filing joint return).
Subsidy applies to all employer-sponsored
plans to which COBRA applies (medical
dental, vision, and prescription drug).
Only health flexible
O l h lth fl ibl spending accounts are
No exemptions f governmental employers
or voluntary (non-ERISA) plans.
MAXIMUM SUBSIDY PERIOD
Subsidy available for up to 9 months (although maximum
COBRA coverage period is still 18 months following
termination of employment).
9-month period measured from later of loss of regular
coverage or March 1, 2009 -- even if termination of
employment was prior to this date.
Eligibility for subsidy lost if individual offered other employer
group health coverage or eligible for Medicare benefits -- even
if not enrolled in plan or entitled to Medicare.
Eligibility for subsidy not lost if offered only dental or vision
coverage, flexible spending account, employee assistance
plan, or on-site medical clinic.
CALCULATION OF SUBSIDY
Maximum subsidy equals 65% of total
COBRA premium (including 2%
But federal subsidy applies only to portion of
COBRA premium not subsidized by
Example: Total COBRA premium is $800,
but employer pays 50% of premium under
severance policy. So federal subsidy would
be only 65% of $400 or $260
If qualified beneficiary pays 35% of applicable premium,
employer must pay other 65%.
Employer may recover the 65% through a credit against
payroll tax liability (including income tax withholding and
both employer and employee shares of FICA).
If subsidy exceeds payroll tax liability, employer may
obtain payment from federal government under rules
applicable to overpayment of payroll taxes.
Under multiemployer plan plan must provide and then
Under small insured plan (not subject to federal
COBRA), insurer must provide and recover subsidy.
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If plan is not able to implement subsidy procedures
by March 1st, may continue to collect full COBRA
premium for months of March and April.
Must then either (1) credit 65% subsidy amount for
these months against future COBRA premiums or
(2) refund amounts to COBRA beneficiaries.
Amounts not fully credited within 180 days must be
refunded within 60 days.
COBRA election notices must describe premium
subsidy and enclose forms needed to establish
Must also send notice to all employees terminating on
or after September 1, 2008 – whether voluntarily or
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involuntarily – along with forms needed to establish
eligibility for subsidy.
Deadline for providing retroactive notice is 60 days
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after enactment date, or approximately April 18, 2009.
Government to issue model notice by March 19, 2009.
Any eligible individual whose involuntary termination of
employment was on or after September 1, 2008, but before
February 17, 2009, may elect COBRA coverage at any time
up to 60 days after receiving retroactive notice.
COBRA coverage would then be effective as of March 1,
2009, d b
2009 and be available f up t remainder of 18
il bl for to id f 18-month period
(measured from termination of employment).
Subsidy would be available for up to 9 months after March 1,
Any gap in coverage must be disregarded when identifying a
63-day gap in coverage that would cause loss of p
yg p g prior
creditable coverage (for preexisting condition purposes).
No subsidy available if an individual is not
entitled to COBRA – e.g., if terminated for
Individual may not claim health coverage tax
credit for any month in which this subsidy is
COBRA beneficiary receiving subsidy must
notify plan upon b
if l becoming eligible f other
i li ibl for h
coverage or Medicare (may be assessed
penalty of up to 110% of subsidy if notice is
Government will resolve dispute as to employee’s
eligibility for subsidy within 15 days after
employee’s request (replacing plan’s claims and
appeals procedures for this purpose).
Employer may – b t need not – allow subsidy-
El but dt ll b id
eligible individual to elect COBRA under any other
plan covering active employees, so long as the
COBRA premium for that coverage does not
exceed the premium for the individual’s pre-
EMPLOYER NEXT STEPS
Identify all covered employees terminating
employment on or after September 1, 2008 –
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including their covered dependents.
Determine which of these employees terminated
Coordinate with COBRA administrator and payroll
Review existing severance arrangements for
possible revisions needed to allow terminated
employees to receive this subsidy
A subsidy is not available if an individual is not entitled to
COBRA – e.g., if terminated for gross misconduct.
No subsidy available if an individual’s event was due to;
Voluntary Termination; Reduction in Hours; Divorce or
Dissolution of Marriage; Loss of Dependent Status under
the Plan; Death of Employee
Individual may not claim health coverage tax credit for any
month in which this subsidy is received.
COBRA beneficiary receiving subsidy must notify plan upon
becoming eligible for alternative coverage or Medicare (may be
assessed penalty of up to 110% of subsidy if notice is not
PAYROLL TAX CREDITS
The employer recoups the subsidy by claiming credits equal
to the subsidy against their payroll tax deposits (filed on the
th new 941 F Form, LiLines 12 and 12b)
12a d 12b).
No payroll tax credits may be taken until the reduced
premium (35%) h b
i has been received f
i d from eligible i di id l
li ibl individuals.
The “Attestation of Involuntary Termination”, including
the date of the involuntary termination (which must be
during the period from Sept 1 2008 to Dec 31 2009) for
each covered employee whose involuntary termination is
the basis for the eligibility for the subsidy.
Information on the Receipt, including dates and amounts,
of the assistance eligible i di id l ’ 35% share of th
f th it li ibl individuals’ h f the
PAYROLL TAX CREDITS
Insured Plans; copy of the invoice or other supporting
statement from the insurance carrier and proof of timely
payment of the full p
premium to the insurance carrier
required under COBRA.
Self-Insured Plans; proof of the premium amount and proof
of the coverage provided to the assistance eligible
Proof of each assistance eligible individual’s eligibility for
COBRA coverage at any time during the period from
September 1, 2008, to December 31, 2009 and election of
p , , ,
A record of the SSN’s (TIN’s) of all covered employees,
the amount of the subsidy reimbursed, and whether for 1
individual or 2 or more individuals
Deadline for providing retroactive notice is 60 days
after enactment date, or approximately April 18,
Model Notices are due from the Department of Labor
by March 19, 2009.
Employers should be compiling lists of all of the
terminated people and their qualified beneficiaries
since September 1, 2008.
Establish procedures for “Attestation”, Election
tracking, payment certification, and to bill the eligible
individuals the 35% of the premiums they elect as well
as other methods/practices to report the eligible
individuals to the IRS as required.
END OF SUBSIDY
When Will the Subsidy End?:
When the individual becomes eligible for alternative
coverage. (How will we know?)
The individuals nine months ends.
The individual’s COBRA coverage ends.
Watch out for wrong or mis-leading information!
Anything published or distributed before February 17 17,
2009 is likely to be wrong and/or incomplete. Discard any
materials that you have with prior dates.
Over 55 - 10 year eligibility provision did not make it.
Re-opening claims back to September 1, 2008 is not
part of the new law
Subsidy is 65% for 9 Months ; NOT 50%/12 or
Employers failing to comply are subject to the
same COBRA penalties f
lti for non-compliance as
before $110 per day per individual up to $220 per
COBRA participants eligible for the subsidy are
subject to a 110% penalty if they become eligible for
alternative coverage or Medicare and fail to notify
the employer or administrator.
The ARRA was enacted February 17, 2009.
It has been 14 days since the ARRA was signed into
We all have until April 19 to get it together, and get
th new notices ( hi h h
ti (which have not b
t been written yet) i
itt t) in
Mike has been compiling some questions as you have submitted them,
let’s review some now to attempt to provide some answers to your
Thank you for taking time to join us today.
We want to thank The Detroit Regional Chamber of Commerce.
For more information, contact us on line at www.COBRAGuard.net
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