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The COBRA Changes in the American Recovery and Reinvestment Act of 2009Recovery and Reinvestment Act of 2009
COBRA Changes in the ARRAg
The American Recovery d R i t t A t fand Reinvestment Act of
2009 (H R 1)2009 (H.R. 1)COBRA Administration Changes
M h 2009March, 2009COBRAGuard, Inc.
Mission KSMission, KS
SPEAKERSSPEAKERS
Kenneth A. MasonPartner, Spencer, Fane, Britt, & Browne, LLP.p
Robert A. Meyers, Jr.yPresident & CEO, COBRAGuard, Inc.
Michael S. GallagherVP, National Accounts, COBRAGuard, Inc.
OVERVIEWOVERVIEW
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.
E l i d l S b 1Employees terminated as long ago as September 1, 2008, will be eligible for the subsidy, which will require the provision of retroactive notices to these q pindividuals.
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 20 employees).
Subsidy also available to terminated employees’ covered dependents.
Subsidy phased out for employees with adjusted grossSubsidy phased out for employees with adjusted gross incomes of $125,000 to $145,000 ($250,000 to $290,000 if filing joint return).
COVERED PLANSCOVERED PLANS
Subsidy applies to all employer-sponsored plans to which COBRA applies (medicalplans to which COBRA applies (medical, dental, vision, and prescription drug).
O l h lth fl ibl di tOnly health flexible spending accounts are excluded.
fNo exemptions for 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).p y )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 visionEligibility 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% administrative fee).But federal subsidy applies only to portion of COBRA premium not subsidized byCOBRA premium not subsidized by employer.Example: Total COBRA premium is $800,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 $260be only 65% of $400, or $260.
SUBSIDY MECHANICS
If qualified beneficiary pays 35% of applicable premium, employer must pay other 65%.Employer may recover the 65% through a credit againstEmployer 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 mayIf 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 thenUnder multiemployer plan, plan must provide and then recover subsidy.Under small insured plan (not subject to federal COBRA), insurer must provide and recover subsidy.), p y
TRANSISTION RELIEF
If plan is not able to implement subsidy procedures by March 1st may continue to collect full COBRAby March 1st, may continue to collect full COBRA premium for months of March and April.Must then either (1) credit 65% subsidy amount for ( ) ythese months against future COBRA premiums or (2) refund amounts to COBRA beneficiaries. Amounts not fully credited within 180 days must beAmounts not fully credited within 180 days must be refunded within 60 days.
NOTICE OBLIGATIONSNOTICE OBLIGATIONS
COBRA election notices must describe premium subsidy and enclose forms needed to establish yeligibility.Must also send notice to all employees terminating on or after September 1, 2008 – whether voluntarily or p , yinvoluntarily – along with forms needed to establish eligibility for subsidy.Deadline for providing retroactive notice is 60 days p g yafter enactment date, or approximately April 18, 2009.Government to issue model notice by March 19, 2009.
RETROACTIVE COBRA ELECTIONS
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 timeFebruary 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 il bl f t i d f 18 th i d2009, and be available for up to remainder of 18-month period (measured from termination of employment).
Subsidy would be available for up to 9 months after March 1, 2009.
Any gap in coverage must be disregarded when identifying a 63-day gap in coverage that would cause loss of prior y g p g pcreditable coverage (for preexisting condition purposes).
OTHER CONSIDERATIONSOTHER CONSIDERATIONS
No subsidy available if an individual is not entitled to COBRA – e.g., if terminated for
i d tgross misconduct.Individual may not claim health coverage tax credit for any month in which this subsidy iscredit for any month in which this subsidy is received.COBRA beneficiary receiving subsidy must
if l b i li ibl f hnotify plan upon becoming eligible for other coverage or Medicare (may be assessed penalty of up to 110% of subsidy if notice is not provided).
OTHER CONSIDERATIONSOTHER CONSIDERATIONS
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).
E l b t d t ll b idEmployer may – but need not – allow subsidy-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-termination coveragetermination coverage.
EMPLOYER NEXT STEPSEMPLOYER NEXT STEPS
Identify all covered employees terminating employment on or after September 1, 2008 –p y p ,including their covered dependents.Determine which of these employees terminated involuntarilyinvoluntarily.Coordinate with COBRA administrator and payroll service provider.pReview existing severance arrangements for possible revisions needed to allow terminated employees to receive this subsidyemployees to receive this subsidy.
INELIGIBLE INDIVIDUALS
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 Employeethe 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 uponCOBRA 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 provided).
PAYROLL TAX CREDITSPAYROLL TAX CREDITS
The employer recoups the subsidy by claiming credits equal to the subsidy against their payroll tax deposits (filed on the th 941 F Li 12 d 12b)the new 941 Form, Lines 12a and 12b).
http://www.irs.gov/pub/irs-pdf/f941.pdfNo payroll tax credits may be taken until the reduced
i (35%) h b i d f li ibl i di id lpremium (35%) has been received from eligible 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) forduring 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, f th i t li ibl i di id l ’ 35% h f thof the assistance eligible individuals’ 35% share of the
premium.
PAYROLL TAX CREDITSPAYROLL TAX CREDITS
Insured Plans; copy of the invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier p y prequired under COBRA.Self-Insured Plans; proof of the premium amount and proof of the coverage provided to the assistance eligible individualsindividuals.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 , , ,COBRA coverage.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 individualsindividual or 2 or more individuals
GETTING STARTED
Deadline for providing retroactive notice is 60 days after enactment date, or approximately April 18, 2009.
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 eligibleas 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 OUTWATCH OUT
Watch out for wrong or mis-leading information!Anything published or distributed before February 17Anything published or distributed before February 17,
2009 is likely to be wrong and/or incomplete. Discard anymaterials that you have with prior dates.E lExamples-
Over 55 - 10 year eligibility provision did not make it.Re-opening claims back to September 1, 2008 is not
part of the new lawSubsidy is 65% for 9 Months ; NOT 50%/12 or
60%/12
PENALTIES
Employers failing to comply are subject to theCOBRA lti f lisame COBRA penalties for non-compliance as
before $110 per day per individual up to $220 perday.y
COBRA participants eligible for the subsidy aresubject to a 110% penalty if they become eligible foralternative coverage or Medicare and fail to notifythe employer or administrator.p y
SUMMARYSUMMARY
The ARRA was enacted February 17, 2009.
It has been 14 days since the ARRA was signed into
Law.
We all have until April 19 to get it together, and get
th ti ( hi h h t b itt t) ithe new notices (which have not been written yet) in
the mail.
QUESTIONSQUESTIONS
Mike has been compiling some questions as you have submitted them,let’s review some now to attempt to provide some answers to yourquestions.
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
As a Special Promotion, anyone who attends today’s Webinar canreceive a FREE Subscription to www.COBRAAnswers.com check youremail for details!
