(Article originally published in Business New Hampshire Magazine, May, 2009)
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 ("ARRA") into law. The Act, better known as the financial stimulus law, has immediate and potentially long term effects on businesses of all sizes and their human resource functions.
Good News for the Unemployed/Challenges for the Employers
One of the most publicized components of the Act is the temporary changes it makes to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). The existing legislation gives employees the ability to retain their group health insurance benefits at their own expense after losing employment. Of immediate significance is the federal government subsidy of COBRA continuation coverage premiums for a maximum of nine months for a covered employee whose termination of employment was involuntary.
Under ARRA, the government will subsidize 65% of the COBRA premium charged to an "assistance eligible individual" or AEI. AEIs include employees and their dependents covered by a group medical plan who lose coverage due to involuntary termination of employment between September 1, 2008 and December 31, 2009. The COBRA subsidy applies to all employers, not just employers with 20 or more employees who are required to provide federal continuation coverage. Although ARRA appears to target employees (and their dependents) who lose jobs because of reductions in force, it extends to all employees terminated from employment for any reason other than gross misconduct (to be determined under COBRA).
The bill became effective March 1, 2009, but the enrollment period is retroactive to September 1, 2008. Employees involuntarily terminated prior to March 1 who previously declined COBRA benefits will now be given a second chance to elect benefits. This is referred to as the "Special Enrollment Period". The effective date of the coverage will be the first COBRA coverage period following March 1, 2009 regardless of the date of termination. Although the coverage is not retroactive, the gap in coverage cannot be used to create a preexisting condition exception. However, the time period is counted against the employee's maximum COBRA coverage period (which in most cases, triggered by a loss of employment, is 18 months).
Under ARRA, once the election is made, eligible employees will be required to pay only 35% of the COBRA premium. The insurer or the employer, depending on the circumstances, will be required to advance the remaining 65% of the cost and will be able to later recover the amount of the subsidy on a quarterly basis in the form of a credit against income tax withholding and FICA taxes.
Employers will also have the option, but not the requirement, of offering alternative coverage to terminated employees. If the employer elects to provide this option, an employee may choose to select an alternative plan being offered by the employer at a lower cost than that in which the employee was enrolled during employment.
The subsidy ceases to apply as of the earliest of the following:
- The date the AEI becomes eligible for coverage under another group health plan or Medicare coverage (with a few exceptions);
- Nine months after the first day of the first month to which the subsidy applies;
- The end of the maximum COBRA coverage period allowed by law; or
- For an AEI who elects COBRA during the special enrollment period, the end of the maximum COBRA coverage period that would have applied if the AEI had elected COBRA at the time of termination of employment.
Penalties can be assessed against former employees who fail to provide the required written notice to the plan of their eligibility for substitute coverage.
There are also income eligibility guidelines associated with the subsidies. The subsidy does not apply to employees with adjusted gross income of more than $125,000.00 ($250,000.00 for joint filers) in the year in which they receive the subsidy. Employers and insurers are not required to determine eligibility as reporting is done on the employee's tax return.
Due to these changes employers should take the following actions immediately:
- Identify all potential AEIs including all employees previously covered by the company's health plan who were involuntarily terminated after September 1, 2008 (other than for gross misconduct) and their covered spouses and dependants.
- Identify which AEIs are currently covered by COBRA and which are entitled to the special enrollment period.
- Determine the correct premium to be charged to eligible employees.
- Make certain that company administrative procedures take into account the maximum nine month eligibility for the subsidy as contrasted with the maximum coverage period for COBRA.
- Develop and provide notices required by ARRA as of April 17, 2009 to eligible employees and former employees to which the Special Enrollment Period applies. Model notices are now available at www.dol.gov/ebsa/cobra.html.
- Decide whether the company will offer alternative COBRA coverage to terminated employees as permitted by the law and prepare notices which reflect the various options.
The Act also includes new protections, known as the McCaskill Amendment, for employees of federal contractors and business receiving funding under the Troubled Asset Relief Program (TARP) or stimulus funding who report suspected wrongdoing. Employees cannot be terminated, demoted or otherwise discriminated against for reporting fraud, waste or misuse of government funds. Workers fired for making such reports may file claims seeking job reinstatement, back pay and compensatory damages.
The whistleblower protections are designed to prevent abuse and mismanagement of stimulus funds and safety and health violations resulting from the use of such funds. Among the activities protected are reports not only to external government inspectors, courts and members of Congress but also to in-house supervisors as long as the employee reasonably believes he or she has evidence of:
- Gross mismanagement of any agency contract or grant relating to covered funds;
- A gross waste of covered funds;
- A substantial and specific danger to public health or safety related to the use of covered funds;
- An abuse of authority related to the implementation or use of covered funds; or
- A violation of law, rule or regulation related to an agency contract or grant awarded or issued relating to covered funds.
The protection is very broad and could lead to more whistleblower claims against employers. To bring a complaint an employee must file with the appropriate inspector general of the Recovery Act Accountability and Transparency Board. There is no stated time limit for bringing a complaint, and the burden of proof is relatively low. The complaining party need only show that the protected activity was a "contributing factor" to the retaliation. In order to defeat the claim, the employer must show by "clear and convincing evidence" that they acted for a legitimate purpose unrelated to protected activity.
Privacy of Data
The Act changes some of the privacy and security requirements under the Health Insurance Portability and Accountability Act (HIPAA) by mandating that any entity covered by HIPAA must notify patients of any unauthorized access or disclosure of their "unsecured protected health information" within sixty days after discovery of the breach. It expands coverage to business associates of covered entities which include health information exchanges and other organizations that provide data transmission of protected health information to covered entities. The Department of Health and Human Services is expected to offer guidance as to what constitutes unsecured protected health information shortly.
Immigration Provisions/Protections for Domestic Jobs
A new limitation is placed on H-1B visas for businesses who receive TARP funding. H-1B visas allow employers to hire highly skilled or specialty workers from other countries to work in the U.S. temporarily. Under the Act employers who receive TARP funding or low-cost federal loans under the stimulus package are prohibited from hiring any new H-1B employees for two years. The only exception is for employers who demonstrate good faith attempts to hire U.S. workers to fill the positions including rehiring laid off workers.
Bad News for Some Corporate Executives
The Act sets out new compensation limitations for senior executives of businesses that have received bailout money through TARP. Senior executive officers are defined as the highest paid executives of publicly traded companies and company officials whose compensation is subject to disclosure rules enforced by the Securities and Exchange Commission (SEC). Limitations can now be placed on the compensation of up to the top 20 executives depending upon the amount of TARP or stimulus funding a business receives.
Companies who receive TARP or stimulus funding are now also required to adopt policies regarding excessive or luxury expenditures for entertainment or events, office and facility renovations, aviation or other transportation expenses and activities for staff development, performance incentives or programs conducted outside normal business operations.
The Act brings with it new responsibilities for businesses and new challenges for those performing the human resource and benefit management functions. There is a great deal to learn, and relatively quickly, given the deadlines associated with some of the provisions. In addition to the US Department of Labor website above, updated information will be available at www.recovery.gov and www.irs.gov.
Charla Bizios Stevens is a shareholder and director in the Employment Law Practice Group at the law firm of McLane, Graf, Raulerson & Middleton, P.A. Charla can be reached at 603-628-1363 or [email protected]. The McLane Law Firm is the largest law firm in the State of New Hampshire, with offices in Concord, Manchester and Portsmouth, as well as Woburn, Massachusetts.