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Cobra Subsidy Information For Texans


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Information for Texans about the COBRA subsidy for Texans as part of the American Recovery and Reinvestment ACT of 2009

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Cobra Subsidy Information For Texans

  1. 1. The American Recovery & Reinvestment Act (ARRA), COBRA and YOU March 2009 Information for Texans about the 2009 COBRA Subsidy.
  2. 2. Brought to you as a public service for Texans by: Mike Chapman <ul><li>Endeavor Group </li></ul><ul><li> My ministry that explains health care options for the unemployed. </li></ul><ul><li> Health and life insurance for individuals and Families </li></ul><ul><li> : An employee benefits consultant and group health insurance broker for Texas based companies </li></ul>Contact Info: 214-764-6315, [email_address]
  3. 3. The ARRA 2009 Stimulus Package <ul><li>American Recovery & Reinvestment Act (ARRA) </li></ul><ul><li>Signed into effect by President Obama on February 17, 2009 (enactment date) </li></ul><ul><li>Becomes effective for periods of coverage on or after February 17, 2009 – Generally March 1, 2009 </li></ul><ul><li>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 </li></ul>
  4. 4. Changes to COBRA <ul><li>Creates Health Insurance Assistance for the Unemployed </li></ul><ul><ul><li>65% Subsidy for those who involuntarily lost employment </li></ul></ul><ul><ul><li>Employers and plans sponsors must provide the 65% subsidy for up to 9 months of premiums </li></ul></ul><ul><ul><li>Provides an additional 60-day election period </li></ul></ul><ul><ul><li>Creates additional notice requirements </li></ul></ul><ul><ul><li>Extends continuation for certain situations </li></ul></ul><ul><li>Applies to both federal COBRA and TX state continuation laws. </li></ul>
  5. 5. Eligibility Requirements <ul><li>Must be an “Assistance Eligible Individual” (AEI) </li></ul><ul><ul><li>Individual whose qualifying event is involuntary termination (exception for gross misconduct) </li></ul></ul><ul><ul><li>Qualifying event must take place between Sept. 1, 2008 and Dec. 31, 2009 </li></ul></ul><ul><ul><li>The individual must elect continuation coverage initially or during second election period </li></ul></ul>
  6. 6. Involuntary Termination <ul><li>Involuntary termination means it was the employer’s choice, not the individual’s </li></ul><ul><li>Includes termination for performance issues </li></ul><ul><li>IRS recently clarified that employer-initiated lay offs are “generally” included </li></ul><ul><ul><li>Need further guidance on what is “generally” </li></ul></ul><ul><li>IRS will be issuing future guidance on what is considered “Involuntary Termination” </li></ul><ul><ul><li>Early retirement, contract end dates, etc. </li></ul></ul>
  7. 7. Eligibility Requirements <ul><li>Applies to all eligible group health plans other than Health FSAs </li></ul><ul><li>Does not apply to other qualifying events such as voluntary termination, reduction in hours, divorce, loss of dependent status, etc. </li></ul>
  8. 8. Expedited Review <ul><li>Expedited review of denials for individuals who apply to be treated as AEIs (e.g., the individual believes they are entitled to the subsidy) </li></ul><ul><li>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 </li></ul><ul><li>Appeals submitted to </li></ul>
  9. 9. Subsidy & AEIs <ul><li>Subsidy applies to periods of coverage after the enactment of the Act – Generally March 1, 2009 </li></ul><ul><ul><li>Period of coverage is monthly </li></ul></ul><ul><li>AEIs are required to pay 35% of the applicable COBRA premium </li></ul><ul><ul><li>If the premium is 102%, then the AEI pays 35% of the 102% COBRA premium </li></ul></ul><ul><li>Additional guidance is needed on domestic partners and covered individuals </li></ul><ul><ul><li>IRS to issue guidance on the calculation </li></ul></ul>
  10. 10. Subsidy & Severance <ul><li>Special rules apply when a plan sponsor pays part of the COBRA premium (such as in a severance agreement) </li></ul><ul><li>The AEI must pay only 35% of their required continuation premium (35% of their share) </li></ul><ul><li>Example: the COBRA premium is $500 per month but due to a severance agreement, the AEI is only required to pay $100 per month </li></ul><ul><li>- $100 is viewed as the “applicable COBRA premium” </li></ul><ul><li>- AEI now pays $35 </li></ul><ul><li>- Employer claims subsidy of $65 </li></ul><ul><li>Further guidance needed – example above is our current interpretation </li></ul>
  11. 11. Subsidy & AEIs <ul><li>All AEIs are eligible for the subsidy (employee, spouse and dependents) </li></ul><ul><li>Income limitation and subsidy recapture </li></ul><ul><li>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 </li></ul><ul><li>AEIs with earnings above the limits must repay the subsidy, in full </li></ul><ul><ul><li>High income AEIs will repay through personal taxes </li></ul></ul>
  12. 12. Subsidy & Plan Sponsors <ul><li>Employers must provide the subsidy and then will take a credit against payroll taxes </li></ul><ul><ul><li>If the credit is insufficient to recover the full subsidy amount, employers will be able to apply for a direct payment </li></ul></ul><ul><li>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 </li></ul>
  13. 13. Subsidy Entitlement <ul><li>Multiple employer plans, or </li></ul><ul><li>Employers subject to federal COBRA will take the credit, or </li></ul><ul><li>For plans that are not listed above (e.g., state continuation), the insurer will take the credit </li></ul><ul><li>Note: employers who fall under state continuation may want to contact their insurer </li></ul>
  14. 14. Subsidy <ul><li>Subsidy can last up to 9 months </li></ul><ul><li>Subsidy ends when: </li></ul><ul><ul><li>Individual becomes eligible for other coverage </li></ul></ul><ul><ul><li>9 months after the 1 st day for the month to which the subsidy applies </li></ul></ul><ul><ul><li>End of COBRA coverage period (including permissible early terminations) </li></ul></ul><ul><ul><li>For those AEIs who elect COBRA during the special enrollment period, the maximum coverage date if AEI had elected COBRA coverage when first entitled </li></ul></ul><ul><li>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 </li></ul>
  15. 15. Subsidy <ul><li>Eligible for other group health plan coverage does not apply to: </li></ul><ul><ul><ul><li>Dental, vision, counseling or referral services </li></ul></ul></ul><ul><ul><ul><li>Flexible spending accounts or health reimbursement arrangements </li></ul></ul></ul><ul><ul><ul><li>Onsite medical facility, wellness </li></ul></ul></ul>
  16. 16. Extension of Election Period <ul><li>A second election period is provided to those: </li></ul><ul><ul><li>Who did not elect initially but would have been assistance eligible if they had elected COBRA continuation </li></ul></ul><ul><ul><li>Elected COBRA and dropped coverage </li></ul></ul><ul><ul><li>Requires an additional notification </li></ul></ul><ul><ul><li>Individual can elect for up to 60 days after they receive notification </li></ul></ul><ul><li>Does not apply to state continuation </li></ul>
  17. 17. Extended Election Period <ul><li>This notice must be provided within 60 days of the Act’s enactment </li></ul><ul><li>COBRA coverage generally begins March 1, 2009 </li></ul><ul><li>Coverage is NOT retroactive to when coverage was lost </li></ul><ul><ul><li>Coverage elected during the special enrollment period ends when COBRA coverage should have ended if initially elected (no extension of coverage) </li></ul></ul><ul><li>No guidance yet on payments </li></ul>
  18. 18. Extended Election Period <ul><li>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 </li></ul><ul><ul><li>Does not apply from the qualifying event to the enactment of the Act </li></ul></ul>
  19. 19. Enrollment <ul><li>Plan enrollment options </li></ul><ul><ul><li>Individual can enroll in group health plan of the employer which they previously had </li></ul></ul><ul><ul><li>AEIs may also enroll in different group health plan of the employer </li></ul></ul><ul><ul><ul><li>Employer may permit this (employer discretion) </li></ul></ul></ul><ul><ul><ul><li>Premium cannot exceed the premium of the coverage at the time of the event </li></ul></ul></ul><ul><ul><ul><li>Excludes dental, vision, Health FSA, HRA, onsite clinic, wellness </li></ul></ul></ul>
  20. 20. Impact on Employers <ul><li>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 </li></ul><ul><ul><li>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 </li></ul></ul><ul><ul><ul><li>Would welcome additional guidance on when the 60-day period begins </li></ul></ul></ul><ul><li>Ensure plan sponsors or their COBRA administrator is providing the extra election period, additional notices, providing the subsidized premium amount </li></ul>
  21. 21. Extended COBRA Coverage <ul><li>Trade Adjustment Assistance eligible employees remain eligible until the earlier of: </li></ul><ul><ul><li>Employee ceases to be Trade Adjustment Assistance eligible </li></ul></ul><ul><ul><li>December 31, 2010 </li></ul></ul><ul><li>Health Care Tax Credit (HCTC) recipients will see their HCTC subsidy increase from 65% to 80% </li></ul>
  22. 22. Extended COBRA Coverage <ul><li>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: </li></ul><ul><ul><li>The employee’s death </li></ul></ul><ul><ul><li>December 31, 2010 </li></ul></ul><ul><ul><li>Spouse and dependent coverage ends 24 months after the employee’s death </li></ul></ul>
  23. 23. Next Steps <ul><li>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. </li></ul><ul><li>Employer identifies which former employees were involuntarily terminated </li></ul><ul><li>Complete Participant Takeover Form for anyone missing from the report that had a qualifying event since 09/01/08 </li></ul><ul><li>Employer faxes the report and any Participant Takeover Forms to their Third party COBRA administrator. </li></ul>
  24. 24. Next Steps <ul><li>Employer begins using the new Qualifying Event Form that is compatible with IRS model for new terminations </li></ul><ul><li>New forms distinguish between voluntary and involuntary termination </li></ul><ul><li>New Qualifying Event Forms will be available for employers on or around April 3, 2009. </li></ul>
  25. 25. Next Steps <ul><li>Future notices for COBRA must contain the subsidy language </li></ul><ul><li>The Department of Labor provided model notices on March 19, 2009 (required within 30 days after the enactment of the Act) </li></ul><ul><li>Review SPDs to determine if COBRA section must be updated </li></ul>
  26. 26. Unresolved Issues <ul><li>Subsidy calculation for domestic partners and covered individuals </li></ul><ul><li>Definition of involuntary termination </li></ul><ul><li>What is the best approach to determine which employers want to offer option to enroll in different health plan? </li></ul>
  27. 27. Other ARRA COBRA Subsidy Resources IRS: Cobra Subsidy Info for Employers IRS: ARRA Tax Provisions US Dept of Labor: COBRA Subsidy Info
  28. 28. Questions, comments or concerns? Register and post your comments or questions at the site and I will post replies, be sure to check out the questions and comments already posted by others.