The American Recovery & Reinvestment Act (ARRA), COBRA and YOU March 2009 Information for Texans about the 2009 COBRA Subsidy.

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Endeavor Group

COBRABusters.com: My ministry that explains health care options for the unemployed.

EndeavorGroup.net: Health and life insurance for individuals and Families

GroupBenefitsAdvisors.com : An employee benefits consultant and group health insurance broker for Texas based companies

The ARRA 2009 Stimulus Package American Recovery & Reinvestment Act (ARRA) Signed into effect by President Obama on February 17, 2009 (enactment date) Becomes effective for periods of coverage on or after February 17, 2009 – Generally March 1, 2009 Note: the provision to provide COBRA to age 65 for those who have 10 years of service or are age 55 did not remain in the final version

American Recovery & Reinvestment Act (ARRA)

Signed into effect by President Obama on February 17, 2009 (enactment date)

Becomes effective for periods of coverage on or after February 17, 2009 – Generally March 1, 2009

Note: the provision to provide COBRA to age 65 for those who have 10 years of service or are age 55 did not remain in the final version

Changes to COBRA Creates Health Insurance Assistance for the Unemployed 65% Subsidy for those who involuntarily lost employment Employers and plans sponsors must provide the 65% subsidy for up to 9 months of premiums Provides an additional 60-day election period Creates additional notice requirements Extends continuation for certain situations Applies to both federal COBRA and TX state continuation laws.

Creates Health Insurance Assistance for the Unemployed

65% Subsidy for those who involuntarily lost employment

Employers and plans sponsors must provide the 65% subsidy for up to 9 months of premiums

Provides an additional 60-day election period

Creates additional notice requirements

Extends continuation for certain situations

Applies to both federal COBRA and TX state continuation laws.

Eligibility Requirements Must be an “Assistance Eligible Individual” (AEI) Individual whose qualifying event is involuntary termination (exception for gross misconduct) Qualifying event must take place between Sept. 1, 2008 and Dec. 31, 2009 The individual must elect continuation coverage initially or during second election period

Must be an “Assistance Eligible Individual” (AEI)

Individual whose qualifying event is involuntary termination (exception for gross misconduct)

Qualifying event must take place between Sept. 1, 2008 and Dec. 31, 2009

The individual must elect continuation coverage initially or during second election period

Involuntary Termination Involuntary termination means it was the employer’s choice, not the individual’s Includes termination for performance issues IRS recently clarified that employer-initiated lay offs are “generally” included Need further guidance on what is “generally” IRS will be issuing future guidance on what is considered “Involuntary Termination” Early retirement, contract end dates, etc.

Involuntary termination means it was the employer’s choice, not the individual’s

Includes termination for performance issues

IRS recently clarified that employer-initiated lay offs are “generally” included

Need further guidance on what is “generally”

IRS will be issuing future guidance on what is considered “Involuntary Termination”

Early retirement, contract end dates, etc.

Eligibility Requirements Applies to all eligible group health plans other than Health FSAs Does not apply to other qualifying events such as voluntary termination, reduction in hours, divorce, loss of dependent status, etc.

Applies to all eligible group health plans other than Health FSAs

Does not apply to other qualifying events such as voluntary termination, reduction in hours, divorce, loss of dependent status, etc.

Expedited Review Expedited review of denials for individuals who apply to be treated as AEIs (e.g., the individual believes they are entitled to the subsidy) Secretary of Labor (or Secretary of HHS), in consultation with the Secretary of Treasury must make a determination within 15 business days of receipt of the application for review Appeals submitted to www.dol.gov/COBRA

Expedited review of denials for individuals who apply to be treated as AEIs (e.g., the individual believes they are entitled to the subsidy)

Secretary of Labor (or Secretary of HHS), in consultation with the Secretary of Treasury must make a determination within 15 business days of receipt of the application for review

Appeals submitted to www.dol.gov/COBRA

Subsidy & AEIs Subsidy applies to periods of coverage after the enactment of the Act – Generally March 1, 2009 Period of coverage is monthly AEIs are required to pay 35% of the applicable COBRA premium If the premium is 102%, then the AEI pays 35% of the 102% COBRA premium Additional guidance is needed on domestic partners and covered individuals IRS to issue guidance on the calculation

Subsidy applies to periods of coverage after the enactment of the Act – Generally March 1, 2009

Period of coverage is monthly

AEIs are required to pay 35% of the applicable COBRA premium

If the premium is 102%, then the AEI pays 35% of the 102% COBRA premium

Additional guidance is needed on domestic partners and covered individuals

IRS to issue guidance on the calculation

Subsidy & Severance Special rules apply when a plan sponsor pays part of the COBRA premium (such as in a severance agreement) The AEI must pay only 35% of their required continuation premium (35% of their share) Example: the COBRA premium is $500 per month but due to a severance agreement, the AEI is only required to pay $100 per month - $100 is viewed as the “applicable COBRA premium” - AEI now pays $35 - Employer claims subsidy of $65 Further guidance needed – example above is our current interpretation

Special rules apply when a plan sponsor pays part of the COBRA premium (such as in a severance agreement)

The AEI must pay only 35% of their required continuation premium (35% of their share)

Example: the COBRA premium is $500 per month but due to a severance agreement, the AEI is only required to pay $100 per month

- $100 is viewed as the “applicable COBRA premium”

- AEI now pays $35

- Employer claims subsidy of $65

Further guidance needed – example above is our current interpretation

Subsidy & AEIs All AEIs are eligible for the subsidy (employee, spouse and dependents) Income limitation and subsidy recapture AEIs who earn from $125,00 to $145,000 (single) and from $250,000 to $290,000 (family), the recaptured amount is based on a sliding scale AEIs with earnings above the limits must repay the subsidy, in full High income AEIs will repay through personal taxes

All AEIs are eligible for the subsidy (employee, spouse and dependents)

Income limitation and subsidy recapture

AEIs who earn from $125,00 to $145,000 (single) and from $250,000 to $290,000 (family), the recaptured amount is based on a sliding scale

AEIs with earnings above the limits must repay the subsidy, in full

High income AEIs will repay through personal taxes

Subsidy & Plan Sponsors Employers must provide the subsidy and then will take a credit against payroll taxes If the credit is insufficient to recover the full subsidy amount, employers will be able to apply for a direct payment Employers can require an individual to pay the full premium for a short period of time while procedures to administer the subsidy are put in place

Employers must provide the subsidy and then will take a credit against payroll taxes

If the credit is insufficient to recover the full subsidy amount, employers will be able to apply for a direct payment

Employers can require an individual to pay the full premium for a short period of time while procedures to administer the subsidy are put in place

Subsidy Entitlement Multiple employer plans, or Employers subject to federal COBRA will take the credit, or For plans that are not listed above (e.g., state continuation), the insurer will take the credit Note: employers who fall under state continuation may want to contact their insurer

Multiple employer plans, or

Employers subject to federal COBRA will take the credit, or

For plans that are not listed above (e.g., state continuation), the insurer will take the credit

Note: employers who fall under state continuation may want to contact their insurer

Subsidy Subsidy can last up to 9 months Subsidy ends when: Individual becomes eligible for other coverage 9 months after the 1 st day for the month to which the subsidy applies End of COBRA coverage period (including permissible early terminations) For those AEIs who elect COBRA during the special enrollment period, the maximum coverage date if AEI had elected COBRA coverage when first entitled AEIs who fail to notify the plan when they are no longer eligible are subject to a penalty of 110% of the improperly paid amount

Subsidy can last up to 9 months

Subsidy ends when:

Individual becomes eligible for other coverage

9 months after the 1 st day for the month to which the subsidy applies

End of COBRA coverage period (including permissible early terminations)

For those AEIs who elect COBRA during the special enrollment period, the maximum coverage date if AEI had elected COBRA coverage when first entitled

AEIs who fail to notify the plan when they are no longer eligible are subject to a penalty of 110% of the improperly paid amount

Subsidy Eligible for other group health plan coverage does not apply to: Dental, vision, counseling or referral services Flexible spending accounts or health reimbursement arrangements Onsite medical facility, wellness

Eligible for other group health plan coverage does not apply to:

Dental, vision, counseling or referral services

Flexible spending accounts or health reimbursement arrangements

Onsite medical facility, wellness

Extension of Election Period A second election period is provided to those: Who did not elect initially but would have been assistance eligible if they had elected COBRA continuation Elected COBRA and dropped coverage Requires an additional notification Individual can elect for up to 60 days after they receive notification Does not apply to state continuation

A second election period is provided to those:

Who did not elect initially but would have been assistance eligible if they had elected COBRA continuation

Elected COBRA and dropped coverage

Requires an additional notification

Individual can elect for up to 60 days after they receive notification

Does not apply to state continuation

Extended Election Period This notice must be provided within 60 days of the Act’s enactment COBRA coverage generally begins March 1, 2009 Coverage is NOT retroactive to when coverage was lost Coverage elected during the special enrollment period ends when COBRA coverage should have ended if initially elected (no extension of coverage) No guidance yet on payments

This notice must be provided within 60 days of the Act’s enactment

COBRA coverage generally begins March 1, 2009

Coverage is NOT retroactive to when coverage was lost

Coverage elected during the special enrollment period ends when COBRA coverage should have ended if initially elected (no extension of coverage)

No guidance yet on payments

Extended Election Period For those individuals who have a gap in coverage due to the second election period, this will not be viewed as a gap in coverage toward the 63-day gap in coverage under HIPAA Does not apply from the qualifying event to the enactment of the Act

For those individuals who have a gap in coverage due to the second election period, this will not be viewed as a gap in coverage toward the 63-day gap in coverage under HIPAA

Does not apply from the qualifying event to the enactment of the Act

Enrollment Plan enrollment options Individual can enroll in group health plan of the employer which they previously had AEIs may also enroll in different group health plan of the employer Employer may permit this (employer discretion) Premium cannot exceed the premium of the coverage at the time of the event Excludes dental, vision, Health FSA, HRA, onsite clinic, wellness

Plan enrollment options

Individual can enroll in group health plan of the employer which they previously had

AEIs may also enroll in different group health plan of the employer

Employer may permit this (employer discretion)

Premium cannot exceed the premium of the coverage at the time of the event

Excludes dental, vision, Health FSA, HRA, onsite clinic, wellness

Impact on Employers Group health plan sponsors will need to ensure they are offering the 65% subsidy to AEIs beginning for periods of coverage after February 17, 2009 Due to timing, if premiums are not adjusted in time, the plan administrator must provide a credit against future premiums or pay a refund within 60 days Would welcome additional guidance on when the 60-day period begins Ensure plan sponsors or their COBRA administrator is providing the extra election period, additional notices, providing the subsidized premium amount

Group health plan sponsors will need to ensure they are offering the 65% subsidy to AEIs beginning for periods of coverage after February 17, 2009

Due to timing, if premiums are not adjusted in time, the plan administrator must provide a credit against future premiums or pay a refund within 60 days

Would welcome additional guidance on when the 60-day period begins

Ensure plan sponsors or their COBRA administrator is providing the extra election period, additional notices, providing the subsidized premium amount

Extended COBRA Coverage Trade Adjustment Assistance eligible employees remain eligible until the earlier of: Employee ceases to be Trade Adjustment Assistance eligible December 31, 2010 Health Care Tax Credit (HCTC) recipients will see their HCTC subsidy increase from 65% to 80%

Trade Adjustment Assistance eligible employees remain eligible until the earlier of:

Employee ceases to be Trade Adjustment Assistance eligible

December 31, 2010

Health Care Tax Credit (HCTC) recipients will see their HCTC subsidy increase from 65% to 80%

Extended COBRA Coverage For employees who have a non-forfeitable right to receive Pension Benefit Guaranty Corporation (PBGC) benefits, the maximum COBRA coverage period ends for the covered employee the earlier of: The employee’s death December 31, 2010 Spouse and dependent coverage ends 24 months after the employee’s death

For employees who have a non-forfeitable right to receive Pension Benefit Guaranty Corporation (PBGC) benefits, the maximum COBRA coverage period ends for the covered employee the earlier of:

The employee’s death

December 31, 2010

Spouse and dependent coverage ends 24 months after the employee’s death

Next Steps If former employer utilizes a Third party COBRA administrator, they will mail employers a report of all Qualifying Event notices from 9/1/2008 through current that were sent by the COBRA administrator on March 30, 2009. Employer identifies which former employees were involuntarily terminated Complete Participant Takeover Form for anyone missing from the report that had a qualifying event since 09/01/08 Employer faxes the report and any Participant Takeover Forms to their Third party COBRA administrator.

If former employer utilizes a Third party COBRA administrator, they will mail employers a report of all Qualifying Event notices from 9/1/2008 through current that were sent by the COBRA administrator on March 30, 2009.

Employer identifies which former employees were involuntarily terminated

Complete Participant Takeover Form for anyone missing from the report that had a qualifying event since 09/01/08

Employer faxes the report and any Participant Takeover Forms to their Third party COBRA administrator.

Next Steps Employer begins using the new Qualifying Event Form that is compatible with IRS model for new terminations New forms distinguish between voluntary and involuntary termination New Qualifying Event Forms will be available for employers on or around April 3, 2009.

Employer begins using the new Qualifying Event Form that is compatible with IRS model for new terminations

New forms distinguish between voluntary and involuntary termination

New Qualifying Event Forms will be available for employers on or around April 3, 2009.

Next Steps Future notices for COBRA must contain the subsidy language The Department of Labor provided model notices on March 19, 2009 (required within 30 days after the enactment of the Act) Review SPDs to determine if COBRA section must be updated

Future notices for COBRA must contain the subsidy language

The Department of Labor provided model notices on March 19, 2009 (required within 30 days after the enactment of the Act)

Review SPDs to determine if COBRA section must be updated

Unresolved Issues Subsidy calculation for domestic partners and covered individuals Definition of involuntary termination What is the best approach to determine which employers want to offer option to enroll in different health plan?

Subsidy calculation for domestic partners and covered individuals

Definition of involuntary termination

What is the best approach to determine which employers want to offer option to enroll in different health plan?

Other ARRA COBRA Subsidy Resources IRS: Cobra Subsidy Info for Employers IRS: ARRA Tax Provisions US Dept of Labor: COBRA Subsidy Info

Questions, comments or concerns? Register and post your comments or questions at the COBRABusters.com site and I will post replies, be sure to check out the questions and comments already posted by others.