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COBRA Subsidy and Unemployment Benefits Extended by the CEA

Last Updated: April 28, 2010

On Thursday, April 15, 2010, President Obama signed the Continuing Extension Act of 2010 (CEA) into law. This legislation addressed two important employment provisions: extension of the ARRA COBRA subsidy to involuntary terminations that occur through May 31, 2010 and an extension of certain ARRA unemployment provisions through June 2, 2010.

Background

As you may recall, ARRA created a federal subsidy for certain individuals losing their group health insurance who elected COBRA continuation coverage (see Vantaggio's article COBRA Subsidy Created by ARRA). Assistance Eligible Individuals (AEIs) whose employment was terminated involuntarily between September 1, 2008 and December 31, 2009 could receive a subsidy in the amount of 65% of their COBRA premium for a period of 9 months. The Department of Defense Appropriations Act of 2010 (DOD Act) included a provision extending this federal COBRA premium subsidy to involuntary terminations through February 28, 2010 and provided an additional 6 months of subsidy on top of the original 9 for a total of 15 months. Additionally, certain ARRA unemployment benefits that were due to begin phasing out by the end of 2009 were extended through the first two months of 2010. The DOD Act pushed out the date for these benefits to February 28, 2010. The Temporary Extension Act (TEA) took things a step further and extended the subsidy to involuntary terminations that occurred through March 31, 2010 and the unemployment insurance provisions through April 5, 2010. The TEA also expanded the definition of AEIs to include an employee who lost his/her medical benefits as a result of a reduction in hours on or after September 1, 2008 and then experienced an involuntary termination between March 2 and March 31, 2010.

New Subsidy Rules

Although not impacting the maximum period of subsidy eligibility (still 15 months), the CEA extended the definition of AEIs to include involuntary terminations that occur through May 31, 2010 and to an employee who lost his/her medical benefits as a result of a reduction in hours on or after September 1, 2008 and then experiences an involuntary termination between March 2 and May 31, 2010. The premium subsidy for these individuals would, however, only be available for any periods of coverage after March 2, 2010. Additionally, the maximum period of COBRA coverage would still be counted from when the coverage was originally lost due to the reduction in hours. For example, if an employee's hours were reduced in early 2009 and the person elected COBRA at the time, he/she would not have been eligible for the subsidy due to the fact that there was no involuntary termination at the time. If the person is still on COBRA and was terminated on April 2, he/she can now receive the subsidy for periods of coverage following April 2, 2010. As most health insurance plans run on a calendar-month basis, this would mean that this person could receive the subsidy beginning with the month of May. If this same person had NOT elected COBRA in early 2009 when his/her hours were reduced (or if he/she did elect COBRA but then later discontinued the coverage), the CEA will now provide for a new election period allowing the person to get back on COBRA and to start claiming the subsidy. However, the maximum period of COBRA coverage will be measured back from the original date of loss of coverage due to the reduction in hours. The person will not be required to pay any retroactive COBRA premiums for periods during which he/she was not covered, and any periods of non-coverage will not count against the 63-day lapse in coverage rules for purposes of determining pre-existing condition exclusions according to HIPAA.

More Notice Requirements

The TEA and the CEA have created 3 new notice requirements for employers. Individuals (and their qualified beneficiaries) terminated beginning March 1, 2010 who already received COBRA notices that did not contain accurate subsidy information, but who elected COBRA, must now be notified of the availability of the extended subsidies. A second new notice is required for individuals who terminated beginning March 1, 2010, who also already received COBRA notices that did not contain accurate subsidy information, but who either declined COBRA or elected and subsequently discontinued it. A third new notice must be sent to anyone who experiences an involuntary termination between March 2 and May 31, 2010 and who previously lost coverage due to a reduction in hours on or after September 1, 2008. It's important to remember that some of these individuals will include employees who are not covered by the Company's health plan at the time of his/her termination.

 

What is an Involuntary Termination?

As discussed in our earlier article, the TEA also provided some additional guidance to employers who have been faced with sometimes making a difficult judgment call about whether or not a particular situation would be considered an involuntary termination. What if the employer reduces an employee's hours, and the employee resigns as a result? What if an employee elects to resign in lieu of being terminated? The TEA clarified that if an employer makes a reasonable interpretation of ARRA (including its amendments and the guidance issued since), maintains supporting documentation (including a written attestation by the employer), then the termination will be considered an "involuntary termination." This is not a free-pass for employers, as the DOL could still overturn an employer's decision, but it should provide some level of comfort provided that the employer makes a good-faith, reasonable attempt to comply.

Related Earlier Provisions

We relayed in our earlier article that the TEA also added specific penalties for employers and insurers who fail to follow a DOL determination following review of a subsidy denial. These penalties can include civil action and monetary penalties of up to $110 per day for failure to comply. The Act also provided clarification about the "transition period," a term first used in the DOD Act that refers to the period of time during which an individual's original 9-month subsidy expired before the subsidy was increased to 15 months. The TEA clarified that these individuals must make their COBRA payments by the latest of 60 days from the enactment of the DOD Act (December 19, 2009); 30 days after receipt of the notice required by the DOD Act; or the end of the otherwise applicable grace period.

More Details

Pending federal legislation, H.R. 4213, would extend unemployment benefits and the COBRA subsidy through December 31, 2010. Vantaggio will keep you informed as we learn more.

For a full review of the new law, see Continuing Extension Act of 2010. Details about the COBRA subsidy extension can be found in Section 3 and the unemployment insurance provisions in Section 2.

What should employers do?

As the new law takes effect immediately and is retroactive in nature, employers are encouraged to revisit the following:

·         Notify anyone who was an AEI at any time in March, April, or May 2010 of these new provisions.

·         Notify anyone who lost coverage due to a reduction in hours after September 1, 2009 and who later experiences an involuntary termination between March 2 and May 31, 2010 of the new subsidy provisions and new election period.

·         Update ALL existing COBRA notices to include the new provisions:

     o    General (Initial) Notice;

     o    Election (Qualifying Event) Notice;

     o    Summary of the COBRA Premium Reduction Provisions under ARRA; and

     o    Request for Treatment as an Assistance Eligible Employee.

·         Develop and send any newly required notices:

     o    Supplemental Information Notice; and

     o    Notice of Extended Election Period

·         Communicate with your insurance carrier and Third Party COBRA Administrator to be sure that all new notice requirements and special election opportunities are being met. REMEMBER: at the end of the day, regardless of who is administering COBRA, the employer is responsible and liable for compliance.

·         Provide training and guidance to your payroll and benefits administration employees.

 

Due to the costly fines and penalties that can be assessed and the significant liability to the employer in the event someone does not receive the appropriate coverage, we urge our clients to take COBRA administration very seriously. You should review and update all COBRA procedures and documents on no less than an annual basis, or more frequently as the law changes.

If you do not have a third-party administrator (TPA) for COBRA, please contact Vantaggio for a recommendation. Although we believe that a competent TPA is the best course of action, for our clients who elect to keep this function in-house, we have developed a self-administration kit. Please click here for more details: Vantaggio HR's COBRA Notice Kit.


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