Published in the New Hampshire Business Review, March 27, 2009 (http://www.nhbr.com/apps/pbcs.dll/article?AID=/20090327/INDUSTRY04/903269899)
Lisa is the controller of a 90 employee company in New Hampshire. In addition to handling the financial matters and payroll for the company, she also administers the benefits and day- to -day human resources issues. Lisa read in this morning's paper that President Obama's massive stimulus package has been signed into law and one of its many provisions makes significant changes to COBRA. What does Lisa do now?
Lisa has her work cut out for her and she needs to act quickly. 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, makes significant temporary changes to COBRA, the existing law which was enacted as part of the Consolidated Omnibus Budget Reconciliation Act of 1985, essentially ensuring that employees between employment would be able to retain their health insurance benefits. Of immediate significance is the federal government subsidy of COBRA continuation coverage premiums for a maximum of nine months for a covered employee's 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 is 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.
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 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.
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 Lisa needs to 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 within 60 days of enactment to eligible employees and former employees to which the Special Enrollment Period applies. 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.
Lisa should be mindful of the fact that although quick action is required, much of the information needed to implement the provisions of the law, such as the new COBRA notices, have not yet been developed. She therefore needs to keep watch for more information as it becomes available and consult with counsel and her company's benefits administrator to insure that she keeps her company in compliance.
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.