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Update To COBRA Requirements Under The Stimulus Act

The American Recovery and Reinvestment Act of 2009 includes COBRA premium subsidy requirements for eligible employees who terminate employment between September 1, 2008 and December 31, 2009. Eligible employees only pay 35% of the regular COBRA premium for up to nine months of coverage. Employers recoup the 65% subsidy by taking a credit against payroll tax payments.

The U.S. Department of Labor (DOL) has issued model Notices to help employers comply with the COBRA premium subsidy. As set forth below, employers will have to send Notices by April 18, 2009.

If your Plan uses an outside COBRA vendor, the vendor may prepare and send the Notices. In that event, you still will need to make certain eligibility determinations and answer questions regarding the subsidy.

There are three model Notices – the Full General Notice, the Abbreviated General Notice, and the Extended Election Period Notice. The Notices describe the COBRA premium subsidy and include a form for persons to complete if they believe they are eligible for the subsidy. (Also, the DOL has issued a fourth Notice for insurers that provide health insurance policies to employers who are not subject to COBRA, because they have fewer than 20 employees. The insurer is responsible for providing this Notice to affected individuals under a state’s “mini-COBRA law”.) The Notices are available on the DOL website, Click on “COBRA ARRA Model Notices”.

You may either modify your existing COBRA forms to include the new premium subsidy information, or use the model Notices. If you use the model Notices, they must be completed with specific information regarding your plan. Please contact us if you would like our assistance in customizing the Notices.

At this time, we recommend you take the following steps:

  • First, identify all persons whose COBRA qualifying event occurred on or after September 1, 2008.
  • Second, send the Full General Notice to all persons whose COBRA qualifying event for any reason occurred on or after September 1, 2008, if either (a) they did not receive a COBRA election, or (b) they received a COBRA election after February 16, 2009 which did not include information about the COBRA premium subsidy. This Notice must be sent as soon as administratively feasible.
  • Third, by April 18, send the Abbreviated General Notice to all persons who had a COBRA qualifying event for any reason on or after September 1, 2008, if they elected COBRA and are still on COBRA.
  • Fourth, by April 18, send the Extended Election Period Notice to all persons who had a COBRA qualifying event between September 1, 2008 and February 16, 2009, and who either did not elect COBRA or who elected COBRA and then dropped it. Employees who were involuntarily terminated during this period (and their dependents) have 60 days from the date of the Extended Election Period Notice to elect COBRA. Coverage under such an election will generally be effective as of March 1, 2009. Note, the law only requires that this Notice be sent to persons whose COBRA qualifying event is an involuntary termination of employment. Some employers may find it easier, however, to send this Notice either to all persons who had a COBRA qualifying event for any reason during this period, or to persons whose COBRA qualifying event was for a reason other than divorce, death, loss of dependent status or entitlement to Medicare.

You should also make a list of the employees who you believe were involuntarily terminated. The Notices include a form entitled “Request for Treatment as an Assistance Eligible Individual”. Persons who believe that they were involuntarily terminated, and therefore are eligible for the premium subsidy must complete the form and return it to you. You must complete a portion of the form, indicating whether you agree with the characterization of the termination, and return a copy of the form to the applicant. Persons who disagree with your decision can appeal to the DOL. The DOL will release an appeal application form soon.

Unfortunately, the DOL has not provided definitive guidance on the meaning of “involuntary termination”, other than to say that the termination must be at the direction of the employer. DOL has stated that death is not an involuntary termination and that employees who are laid-off or fired are considered to be involuntarily terminated. While deciding whether a termination is involuntary may not be easy in some situations, informal guidance from DOL staff indicates that the DOL will interpret the new law to benefit former employees and their dependents in a close case.

We can advise you regarding the “involuntary termination” determination in cases that are not clear. We can also help you respond to persons who claim to be eligible for the premium subsidy or entitled to the extended COBRA election period, but who you determine were not involuntarily terminated.

Our next Alert will discuss the appeal process and other administrative issues, including the payroll tax credit and what to do if a person who is entitled to the subsidy has already paid the full COBRA premium for March and April.