COBRA Changes in the Stimulus COBRA Changes in the Stimulus PackagePackage

Immediate Employer Action Immediate Employer Action RequiredRequired

Wendy C. Carmichael, Esq.Wendy C. Carmichael, Esq.

USI SouthwestUSI Southwest

April 14, 2009April 14, 2009

AgendaAgenda

Overview of COBRAOverview of COBRA New COBRA ProvisionsNew COBRA Provisions

COBRA SubsidyCOBRA Subsidy Alternative Coverage OptionAlternative Coverage Option Special EnrollmentSpecial Enrollment Notice RequirementsNotice Requirements Employer ReimbursementEmployer Reimbursement Action ItemsAction Items

DisclaimerDisclaimer

This presentation is intended to This presentation is intended to convey general information and may convey general information and may not take into account all the not take into account all the circumstances relevant to a circumstances relevant to a particular person’s situation.particular person’s situation.

Overview of COBRAOverview of COBRA

Why COBRA Is a Big DealWhy COBRA Is a Big Deal

Mistakes can result in an employer having to:Mistakes can result in an employer having to: self-fund large claims;self-fund large claims; pay attorney’s fees;pay attorney’s fees; pay excise tax penalties of up to $200 per pay excise tax penalties of up to $200 per

day for failure to comply with COBRA; andday for failure to comply with COBRA; and pay statutory penalties of up to $110 per pay statutory penalties of up to $110 per

day for failure to provide certain notices.day for failure to provide certain notices.

Who handles COBRA administration? If a Who handles COBRA administration? If a vendor, is it a quality vendor? Are you still vendor, is it a quality vendor? Are you still liable for any errors?liable for any errors?

In GeneralIn General

Per the Consolidated Omnibus Budget Per the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), a Reconciliation Act of 1985 (“COBRA”), a qualified beneficiary who loses group health qualified beneficiary who loses group health plan coverage due to a qualifying event plan coverage due to a qualifying event may elect to continue that coverage for a may elect to continue that coverage for a limited time on a self-pay basis.limited time on a self-pay basis.

Almost all group health plans of private and Almost all group health plans of private and public employers must comply with COBRA. public employers must comply with COBRA. Certain small employer plans (fewer than Certain small employer plans (fewer than 20 employees), certain church plans, and 20 employees), certain church plans, and federal government plans are not subject to federal government plans are not subject to COBRA.COBRA.

Group Health PlansGroup Health Plans Group health plans are plans maintained by an Group health plans are plans maintained by an

employer that provide medical care and include employer that provide medical care and include medical, dental, vision, drug plans and some medical, dental, vision, drug plans and some wellness programs and employee assistance wellness programs and employee assistance programs (“EAPs”).programs (“EAPs”).

Health flexible spending arrangements (“FSAs”) are Health flexible spending arrangements (“FSAs”) are group health plans subject to COBRA, but they raise group health plans subject to COBRA, but they raise many difficulties in interpreting and complying with many difficulties in interpreting and complying with COBRA because health FSAs are not typical health COBRA because health FSAs are not typical health insurance arrangements.insurance arrangements.

Employers that sponsor health reimbursement Employers that sponsor health reimbursement arrangements (“HRAs”) generally must offer COBRA arrangements (“HRAs”) generally must offer COBRA to all qualified beneficiaries (not just those who to all qualified beneficiaries (not just those who have underspent their accounts).have underspent their accounts).

Qualifying EventsQualifying Events

COBRA has a list of seven specific triggering COBRA has a list of seven specific triggering events. They are: events. They are:

termination of a covered employee’s employment termination of a covered employee’s employment (other than for gross misconduct);(other than for gross misconduct);

a reduction of a covered employee’s hours of a reduction of a covered employee’s hours of employment;employment;

the death of a covered employee;the death of a covered employee; a divorce or legal separation from the covered a divorce or legal separation from the covered

employee;employee; ceasing to be a dependent child under the terms of ceasing to be a dependent child under the terms of

the plan; andthe plan; and employer bankruptcy (only relates to retiree plans).employer bankruptcy (only relates to retiree plans).

Qualified BeneficiariesQualified Beneficiaries

To be a qualified beneficiary, a person To be a qualified beneficiary, a person generally must satisfy two conditions:generally must satisfy two conditions:

the person must be a covered employee, the person must be a covered employee, the spouse of a covered employee, or the the spouse of a covered employee, or the dependent child of a covered employee; dependent child of a covered employee; andand

the person must be covered by a group the person must be covered by a group health plan immediately before the health plan immediately before the qualifying event (the triggering event).qualifying event (the triggering event).

Each qualified beneficiary is independently Each qualified beneficiary is independently eligible to continue coverage.eligible to continue coverage.

Length of COBRA CoverageLength of COBRA Coverage The maximum coverage period for a loss of The maximum coverage period for a loss of

coverage due to a termination of employment or coverage due to a termination of employment or reduction of hours is 18 months. The maximum reduction of hours is 18 months. The maximum coverage period for any other loss of coverage is 36 coverage period for any other loss of coverage is 36 months.months.

If, after a qualifying event that is a termination of If, after a qualifying event that is a termination of employment or reduction of hours, one of the other employment or reduction of hours, one of the other qualifying events occurs during the initial 18-month qualifying events occurs during the initial 18-month coverage period, then the maximum coverage coverage period, then the maximum coverage period for the spouse or dependent child who is a period for the spouse or dependent child who is a qualified beneficiary is extended to 36 months.qualified beneficiary is extended to 36 months.

In the case of disability, the maximum coverage In the case of disability, the maximum coverage period can be extended to 29 months.period can be extended to 29 months.

Length of COBRA Coverage Length of COBRA Coverage (cont.)(cont.)

A plan can terminate a qualified beneficiary’s A plan can terminate a qualified beneficiary’s COBRA coverage before the maximum coverage COBRA coverage before the maximum coverage period with written notice if:period with written notice if:

the required premium for the qualified beneficiary’s the required premium for the qualified beneficiary’s coverage is not paid on time (taking into account coverage is not paid on time (taking into account any grace periods and other special rules);any grace periods and other special rules);

the qualified beneficiary becomes enrolled in the qualified beneficiary becomes enrolled in Medicare after electing COBRA;Medicare after electing COBRA;

the qualified beneficiary becomes covered by the qualified beneficiary becomes covered by another group health plan after electing COBRA another group health plan after electing COBRA (except that if the other plan’s preexisting condition (except that if the other plan’s preexisting condition exclusion or limitation applies to a condition of the exclusion or limitation applies to a condition of the qualified beneficiary, COBRA coverage can be qualified beneficiary, COBRA coverage can be terminated early only after the other plan’s terminated early only after the other plan’s exclusion or limitation is satisfied);exclusion or limitation is satisfied);

Length of COBRA Coverage Length of COBRA Coverage (cont.)(cont.)

the employer ceases to maintain any group the employer ceases to maintain any group health plan for any employee (for these purposes, health plan for any employee (for these purposes, the employer is defined to include affiliated the employer is defined to include affiliated entities in the employer’s “controlled group”);entities in the employer’s “controlled group”);

if the maximum coverage period has been if the maximum coverage period has been extended under the disability extension, the extended under the disability extension, the qualified beneficiary who had been disabled is qualified beneficiary who had been disabled is determined not to be disabled (COBRA coverage determined not to be disabled (COBRA coverage may be terminated for all qualified beneficiaries may be terminated for all qualified beneficiaries enjoying extended COBRA coverage under the enjoying extended COBRA coverage under the disability extension); ordisability extension); or

for cause (i.e., if the plan could terminate an for cause (i.e., if the plan could terminate an active employee’s coverage for cause such as for active employee’s coverage for cause such as for filing a false benefit claim, then the plan may filing a false benefit claim, then the plan may terminate COBRA coverage for the same reason).terminate COBRA coverage for the same reason).

New COBRA ProvisionsNew COBRA Provisions

SummarySummary Employees involuntarily terminated between September 1, 2008 Employees involuntarily terminated between September 1, 2008

and December 31, 2009 and their family members will only and December 31, 2009 and their family members will only have to pay 35% of the premium amount (rather than the usual have to pay 35% of the premium amount (rather than the usual 102%) for up to 9 months to continue group health coverage.102%) for up to 9 months to continue group health coverage.

Employers pay 65% of the premium, then take a payroll tax Employers pay 65% of the premium, then take a payroll tax credit for that amount.credit for that amount.

If the premium assistance is provided to high income If the premium assistance is provided to high income individuals, then their income tax will be increased by the individuals, then their income tax will be increased by the amount of the subsidy.amount of the subsidy.

Individuals who did not elect COBRA when eligible have 60 days Individuals who did not elect COBRA when eligible have 60 days after notice is provided to elect coverage on a “go-forward” after notice is provided to elect coverage on a “go-forward” basis.basis.

The employer must offer the same health coverage the The employer must offer the same health coverage the individual had at the time of the qualifying event in accordance individual had at the time of the qualifying event in accordance with COBRA, but may also offer other less expensive health with COBRA, but may also offer other less expensive health coverage options.coverage options.

Updated COBRA election notices must be provided by Updated COBRA election notices must be provided by April 18, April 18, 20092009. The DOL issued model notices.. The DOL issued model notices.

Premium SubsidyPremium Subsidy

For a maximum of 9 months, an For a maximum of 9 months, an “assistance eligible individual” must “assistance eligible individual” must only pay 35% of the premium only pay 35% of the premium amount to continue COBRA amount to continue COBRA coverage.coverage.

Assistance Eligible IndividualAssistance Eligible Individual

An An assistance eligible individual assistance eligible individual (“AEI”) is any (“AEI”) is any qualified beneficiary who elects to continue COBRA qualified beneficiary who elects to continue COBRA coverage where:coverage where:

the qualifying event causing loss of coverage is the qualifying event causing loss of coverage is involuntary termination of employment (excluding involuntary termination of employment (excluding termination of employment for gross misconduct); termination of employment for gross misconduct); andand

the qualifying event occurs between September 1, the qualifying event occurs between September 1, 2008 and December 31, 2009.2008 and December 31, 2009.

Each qualified beneficiary (covered employee, Each qualified beneficiary (covered employee, spouse, dependent)* is independently eligible for the spouse, dependent)* is independently eligible for the subsidy.subsidy.

*Qualified beneficiaries who do not elect COBRA when they are entitled to do so are no longer *Qualified beneficiaries who do not elect COBRA when they are entitled to do so are no longer qualified beneficiaries when the COBRA election period expires. Exceptions for new child, court qualified beneficiaries when the COBRA election period expires. Exceptions for new child, court orders. Family members enrolled at open enrollment are not qualified beneficiaries.orders. Family members enrolled at open enrollment are not qualified beneficiaries.

Involuntary TerminationInvoluntary Termination The term “involuntary termination” is not defined in The term “involuntary termination” is not defined in

the new law. the new law. While there is no definition, the determination of While there is no definition, the determination of

whether a termination is involuntary is based on all whether a termination is involuntary is based on all the facts and circumstances. For example, if a the facts and circumstances. For example, if a termination is designated as voluntary or as a termination is designated as voluntary or as a resignation, but the facts and circumstances indicate resignation, but the facts and circumstances indicate that, absent such voluntary termination, the that, absent such voluntary termination, the employer would have terminated the employee’s employer would have terminated the employee’s services, and that the employee had knowledge that services, and that the employee had knowledge that the employee would be terminated, the termination the employee would be terminated, the termination is involuntary. is involuntary.

A determination that an employee was involuntarily A determination that an employee was involuntarily terminated can impact eligibility for other benefits, terminated can impact eligibility for other benefits, including severance benefits and unemployment including severance benefits and unemployment benefits.benefits.

Involuntary Termination (cont.)Involuntary Termination (cont.)

Examples of involuntary termination are:Examples of involuntary termination are: a severance from employment due to the independent exercise of the a severance from employment due to the independent exercise of the

unilateral authority of the employer to terminate the employment, other unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services;was willing and able to continue performing services;

termination of employment for cause unless the due to gross misconduct;termination of employment for cause unless the due to gross misconduct; an involuntary reduction to zero hours, such as a lay-off, furlough, or other an involuntary reduction to zero hours, such as a lay-off, furlough, or other

suspension of employment;suspension of employment; an employee-initiated termination from employment for good reason due to an employee-initiated termination from employment for good reason due to

employer action that causes a material negative change in the employment employer action that causes a material negative change in the employment relationship for the employee;relationship for the employee;

retirement if, absent retirement, the employer would have terminated the retirement if, absent retirement, the employer would have terminated the employee’s services and the employee had knowledge that the employee employee’s services and the employee had knowledge that the employee would be terminated;would be terminated;

resignation as the result of a material change in the geographic location of resignation as the result of a material change in the geographic location of employment for the employee;employment for the employee;

when the employer takes action to end the individual’s employment status;when the employer takes action to end the individual’s employment status; termination elected by the employee in return for a severance package (a termination elected by the employee in return for a severance package (a

“buy-out”) where the employer indicates that after the offer period for the “buy-out”) where the employer indicates that after the offer period for the severance package, a certain number of remaining employees in the severance package, a certain number of remaining employees in the employee’s group will be terminated.employee’s group will be terminated.

Involuntary Termination (cont.)Involuntary Termination (cont.)

Examples of Examples of nono involuntary termination are: involuntary termination are: a work stoppage as the result of a strike a work stoppage as the result of a strike

initiated by employees or their initiated by employees or their representatives;representatives;

an absence from work due to illness or an absence from work due to illness or disability before the employer has taken disability before the employer has taken action to end the individual’s employment action to end the individual’s employment status;status;

death;death; a reduction of hours to more than zero.a reduction of hours to more than zero.

Gross MisconductGross Misconduct

COBRA contains no definition of “gross COBRA contains no definition of “gross misconduct” and no consistent standard has misconduct” and no consistent standard has been articulated by the courts or regulators. been articulated by the courts or regulators. It is clear that termination for gross It is clear that termination for gross misconduct is not the same as termination misconduct is not the same as termination simply “for cause.” Except for the most simply “for cause.” Except for the most flagrant conduct that clearly constitutes a flagrant conduct that clearly constitutes a substantial and willful disregard of the substantial and willful disregard of the employer’s interests, denying COBRA employer’s interests, denying COBRA coverage and the subsidy on account of coverage and the subsidy on account of gross misconduct should be avoided.gross misconduct should be avoided.

Taxability of the Subsidy to the Taxability of the Subsidy to the RecipientRecipient

The subsidy is not taxable to the individual The subsidy is not taxable to the individual receiving it unless provided to an individual with a receiving it unless provided to an individual with a modified gross income of $125,000 ($250,000 in modified gross income of $125,000 ($250,000 in the case of a joint return) for the taxable year in the case of a joint return) for the taxable year in which the subsidy is received (2009 or 2010). In which the subsidy is received (2009 or 2010). In this case, the individual’s taxes will be increased by this case, the individual’s taxes will be increased by the amount of the subsidy. However, if the the amount of the subsidy. However, if the individual’s modified adjusted gross income is individual’s modified adjusted gross income is between $125,000 and $145,000 ($250,000 and between $125,000 and $145,000 ($250,000 and $290,000 in the case of a joint return), the increase $290,000 in the case of a joint return), the increase in tax will be limited to a ratio of such increase in tax will be limited to a ratio of such increase obtained by dividing the amount over the modified obtained by dividing the amount over the modified gross income limit by $20,000 ($40,000 in the case gross income limit by $20,000 ($40,000 in the case of a joint return).of a joint return).

High income individuals can permanently waive High income individuals can permanently waive premium assistance to avoid this recapture.premium assistance to avoid this recapture.

Type of CoverageType of Coverage

The applicable coverage is group health The applicable coverage is group health coverage under COBRA, similar state coverage under COBRA, similar state continuation laws (e.g., those applying to continuation laws (e.g., those applying to small employer plans), and continuation laws small employer plans), and continuation laws that apply to Federal or State governmental that apply to Federal or State governmental health plans.health plans.

With respect to COBRA, it includes all COBRA With respect to COBRA, it includes all COBRA benefits (e.g., major medical, dental, vision, benefits (e.g., major medical, dental, vision, and drug plans; some wellness programs and and drug plans; some wellness programs and employee assistance programs (“EAPs”); and employee assistance programs (“EAPs”); and most health reimbursement arrangements most health reimbursement arrangements (“HRAs”)), but does not include health FSAs.(“HRAs”)), but does not include health FSAs.

Type of Coverage (cont.)Type of Coverage (cont.)

With respect to non-COBRA With respect to non-COBRA coverage, it includes whatever health coverage, it includes whatever health benefits can be continued. For benefits can be continued. For example, for insured Texas and example, for insured Texas and Louisiana plans, only major medical Louisiana plans, only major medical benefits may be continued. benefits may be continued. Therefore, only major medical Therefore, only major medical benefits are subject to the subsidy.benefits are subject to the subsidy.

Alternative CoverageAlternative CoverageAn AEI may elect to continue the same coverage. He may An AEI may elect to continue the same coverage. He may alternatively elect other coverage offered by the employer if:alternatively elect other coverage offered by the employer if:

the employer agrees;the employer agrees; the premium is not more than the premium for the coverage the premium is not more than the premium for the coverage

in which the AEI was enrolled at the time of the qualifying in which the AEI was enrolled at the time of the qualifying event;event;

the other coverage is offered to active employees at the time the other coverage is offered to active employees at the time such election is made; andsuch election is made; and

the other coverage is not:the other coverage is not: only dental, vision, counseling, referral services (or a only dental, vision, counseling, referral services (or a

combination of such services);combination of such services); a health FSA; ora health FSA; or on-site medical facility services.on-site medical facility services.

The election for other coverage may be made within 90 days The election for other coverage may be made within 90 days after the date of notice of the plan enrollment option.after the date of notice of the plan enrollment option.

Premium AmountPremium Amount The premium amount is whatever is actually The premium amount is whatever is actually

charged to the COBRA continuee. Most COBRA charged to the COBRA continuee. Most COBRA continuees pay 102% of the cost of coverage (the continuees pay 102% of the cost of coverage (the premium for insured plans and the premium premium for insured plans and the premium equivalent for self-funded plans). The employee equivalent for self-funded plans). The employee will pay 35% and the employer will pay 65% of that will pay 35% and the employer will pay 65% of that 102% amount.102% amount.

Arrangements made by the employer to pay a Arrangements made by the employer to pay a portion of the COBRA premium (e.g., certain portion of the COBRA premium (e.g., certain severance agreements) are not considered for severance agreements) are not considered for purposes of the subsidy. Therefore, if the employer purposes of the subsidy. Therefore, if the employer agrees to pay a portion of the COBRA premiums, agrees to pay a portion of the COBRA premiums, the subsidy is based only on the COBRA the subsidy is based only on the COBRA continuee’s portion of the premium and not the continuee’s portion of the premium and not the employer’s contribution or the total premium.employer’s contribution or the total premium.

Premium Amount (cont.)Premium Amount (cont.)

Example 1.Example 1. Assume COBRA continuees pay 102% of the Assume COBRA continuees pay 102% of the applicable premium which is $800. Under the new law, applicable premium which is $800. Under the new law, the individual must be entitled to continue coverage the individual must be entitled to continue coverage upon a payment of 35% of that amount ($280). This upon a payment of 35% of that amount ($280). This means the employer must pay $520 and is entitled to a means the employer must pay $520 and is entitled to a payroll tax credit of $520.payroll tax credit of $520.

Example 2.Example 2. Same facts as above except that the Same facts as above except that the employer subsidizes 70% of the $800 premium as part of employer subsidizes 70% of the $800 premium as part of a severance agreement. So, the employer pays $560 a severance agreement. So, the employer pays $560 and the individual pays the remaining $240. Under the and the individual pays the remaining $240. Under the new law, the individual must be entitled to COBRA new law, the individual must be entitled to COBRA coverage upon a payment of 35% of the $240 amount coverage upon a payment of 35% of the $240 amount ($84). This means the employer must pay a total of $716 ($84). This means the employer must pay a total of $716 ($800 minus $84) and is entitled to a payroll tax credit of ($800 minus $84) and is entitled to a payroll tax credit of $156 ($240 minus $84). This result significantly punishes $156 ($240 minus $84). This result significantly punishes the employer for having subsidized COBRA premiums.the employer for having subsidized COBRA premiums.

Premium Amount (cont.)Premium Amount (cont.)

Example 3.Example 3. Same facts as above Same facts as above except that the employer subsidizes except that the employer subsidizes 100% of the $800 premium as part of 100% of the $800 premium as part of a severance agreement. The a severance agreement. The employer is not eligible for any employer is not eligible for any reimbursement. reimbursement.

The premium can be paid by anyone The premium can be paid by anyone other than the entity claiming other than the entity claiming reimbursement.reimbursement.

Duration of SubsidyDuration of Subsidy The subsidy will begin the “first period of coverage” following The subsidy will begin the “first period of coverage” following

February 17, 2009.February 17, 2009. A “period of coverage” is a monthly or shorter period with A “period of coverage” is a monthly or shorter period with

respect to which premiums are charged. Most plans use a respect to which premiums are charged. Most plans use a calendar month for the period of coverage. In this case, the calendar month for the period of coverage. In this case, the subsidy begins subsidy begins March 1, 2009March 1, 2009..

The subsidy terminates with the first month beginning on or The subsidy terminates with the first month beginning on or after the earlier of:after the earlier of: the date which is 9 months after the first day for which the the date which is 9 months after the first day for which the

subsidy applies;subsidy applies; the end of the maximum continuation period for the the end of the maximum continuation period for the

qualified beneficiary under the COBRA rules or the relevant qualified beneficiary under the COBRA rules or the relevant State or Federal law; orState or Federal law; or

the date that the AEI becomes the date that the AEI becomes eligibleeligible for Medicare or for Medicare or health coverage under another group health plan health coverage under another group health plan (including, for example, a group health plan maintained by (including, for example, a group health plan maintained by the new employer of the individual or a plan maintained by the new employer of the individual or a plan maintained by the employer of the individual’s spouse).the employer of the individual’s spouse).

Qualified Beneficiary Notice to Qualified Beneficiary Notice to PlanPlan

If a qualified beneficiary paying a If a qualified beneficiary paying a reduced premium becomes eligible for reduced premium becomes eligible for coverage under another group health coverage under another group health plan or Medicare, he or she must notify plan or Medicare, he or she must notify the group health plan providing the the group health plan providing the COBRA coverage of such eligibility in COBRA coverage of such eligibility in writing or pay a penalty equal to 110% writing or pay a penalty equal to 110% of the subsidy provided after termination of the subsidy provided after termination of eligibility. The notice should be made of eligibility. The notice should be made at the time and in the manner specified at the time and in the manner specified by the DOL.by the DOL.

Reimbursement of OverpaymentReimbursement of Overpayment

For the first two months (March and April of 2009), For the first two months (March and April of 2009), if the full premium amount is paid for an AEI, the if the full premium amount is paid for an AEI, the person who received the payment (e.g., the person who received the payment (e.g., the employer or the carrier) must reimburse the employer or the carrier) must reimburse the overpayment to the individual who paid the overpayment to the individual who paid the premium (e.g., the qualified individual) or provide premium (e.g., the qualified individual) or provide a credit to the individual for future payments. In a credit to the individual for future payments. In general, the plan sponsor may choose the credit general, the plan sponsor may choose the credit approach as long as it is reasonable to believe approach as long as it is reasonable to believe that the credit will be used within 180 days of the that the credit will be used within 180 days of the date of the overpayment. Refunds must be made date of the overpayment. Refunds must be made within 60 days. Obviously, if an eligible assistance within 60 days. Obviously, if an eligible assistance individual ceases to be covered by COBRA, it is no individual ceases to be covered by COBRA, it is no longer reasonable to believe that the credit longer reasonable to believe that the credit approach will work, triggering an obligation to pay approach will work, triggering an obligation to pay a refund.a refund.

Special EnrollmentSpecial Enrollment For a qualified beneficiary who is eligible for a reduced For a qualified beneficiary who is eligible for a reduced

premium and who has not elected COBRA coverage as premium and who has not elected COBRA coverage as of the date of enactment, a special 60 day election of the date of enactment, a special 60 day election period begins on the date that notice is provided to period begins on the date that notice is provided to the qualified beneficiary of the special election period.the qualified beneficiary of the special election period.

The coverage is not retroactive. It will begin the “first The coverage is not retroactive. It will begin the “first period of coverage” following February 17, 2009 and period of coverage” following February 17, 2009 and the coverage period is not extended beyond that the coverage period is not extended beyond that required by COBRA.required by COBRA.

For purposes of preexisting condition exclusions, the For purposes of preexisting condition exclusions, the period between the qualifying event and the date period between the qualifying event and the date coverage is continued via the special enrollment coverage is continued via the special enrollment period is period is notnot counted against participants for purposes counted against participants for purposes of the 63-day break in coverage rules.of the 63-day break in coverage rules.

No special enrollment with respect to state No special enrollment with respect to state continuation.continuation.

Employer Notice to Qualified Employer Notice to Qualified BeneficiariesBeneficiaries

Election notices must be changed to describe these provisions – Election notices must be changed to describe these provisions – either by amendment of existing forms or by inclusion of a either by amendment of existing forms or by inclusion of a separate document with the existing notice.separate document with the existing notice.

The notice must include:The notice must include: the forms necessary for establishing eligibility for premium the forms necessary for establishing eligibility for premium

subsidy;subsidy; the name, address, and telephone number necessary to the name, address, and telephone number necessary to

contact the plan administrator and any other person contact the plan administrator and any other person maintaining relevant information in connection with such maintaining relevant information in connection with such premium subsidy;premium subsidy;

a description of the special election period;a description of the special election period; a description of the obligation to notify the plan of subsequent a description of the obligation to notify the plan of subsequent

eligibility for other group coverage or for Medicare and the eligibility for other group coverage or for Medicare and the penalty associated with failure to notify;penalty associated with failure to notify;

a description, displayed in a prominent manner, of the a description, displayed in a prominent manner, of the qualified beneficiary’s right to a reduced premium and any qualified beneficiary’s right to a reduced premium and any conditions on entitlement to the subsidy; andconditions on entitlement to the subsidy; and

a description of the option of the qualified beneficiary to enroll a description of the option of the qualified beneficiary to enroll in different coverage options, if the employer so permits.in different coverage options, if the employer so permits.

Employer Notice to Qualified Employer Notice to Qualified Beneficiaries (cont.)Beneficiaries (cont.)

Notices describing the new rules Notices describing the new rules must be provided by must be provided by April 18, April 18, 2009.2009.

Failure to provide such notice is Failure to provide such notice is treated as a failure to meet the treated as a failure to meet the notice requirements under the notice requirements under the applicable COBRA provisions.applicable COBRA provisions.

Employer Notice to Qualified Employer Notice to Qualified Beneficiaries (cont.)Beneficiaries (cont.)

The DOL issued model notices which should be sent as follows:The DOL issued model notices which should be sent as follows:

1. Revised Election Notice.1. Revised Election Notice. This notice should be sent to all This notice should be sent to all qualified beneficiaries (employees, opposite sex spouses, and qualified beneficiaries (employees, opposite sex spouses, and dependent children who were covered by the group health dependent children who were covered by the group health plan on the date of the qualifying event) who:plan on the date of the qualifying event) who:

have not yet received an election notice (or who were have not yet received an election notice (or who were provided an election notice on or after February 17, 2009 that provided an election notice on or after February 17, 2009 that did not include the additional information on the premium did not include the additional information on the premium subsidy); andsubsidy); and

have experienced any qualifying event at any time from have experienced any qualifying event at any time from September 1, 2008 through December 31, 2009.September 1, 2008 through December 31, 2009.

2. Subsidy-Only Notice.2. Subsidy-Only Notice. This notice should be sent instead of This notice should be sent instead of the Revised Election Notice to qualified beneficiaries currently the Revised Election Notice to qualified beneficiaries currently enrolled in COBRA coverage with any qualifying event (not just enrolled in COBRA coverage with any qualifying event (not just termination of employment or involuntary termination of termination of employment or involuntary termination of employment) that occurred on or after September 1, 2008.employment) that occurred on or after September 1, 2008.

Employer Notice to Qualified Employer Notice to Qualified Beneficiaries (cont.)Beneficiaries (cont.)

3. Special Enrollment Notice.3. Special Enrollment Notice.This notice should be sent to all qualified This notice should be sent to all qualified beneficiaries where:beneficiaries where:

the qualifying event causing loss of the qualifying event causing loss of coverage is involuntary termination of coverage is involuntary termination of employment that occurred between employment that occurred between September 1, 2008 and February 16, September 1, 2008 and February 16, 2009; and2009; and

the qualified beneficiary either did not the qualified beneficiary either did not elect COBRA coverage or elected it but elect COBRA coverage or elected it but subsequently discontinued it.subsequently discontinued it.

For AEIs Currently on COBRAFor AEIs Currently on COBRA

For example, if an AEI was involuntarily For example, if an AEI was involuntarily terminated on September 30, 2008 and terminated on September 30, 2008 and elected to continue coverage at that time:elected to continue coverage at that time:

he gets a notice by April 18, 2009;he gets a notice by April 18, 2009; the subsidy will kick in March 1, 2009;the subsidy will kick in March 1, 2009; the subsidy will end November 30, 2009, the subsidy will end November 30, 2009,

assuming no early termination event;assuming no early termination event; coverage will end March 31, 2010 (18 coverage will end March 31, 2010 (18

months following September 30, 2008 – months following September 30, 2008 – the regular COBRA period), assuming no the regular COBRA period), assuming no early termination event.early termination event.

For AEIs For AEIs NotNot Currently on Currently on COBRACOBRA

For example, if an AEI was involuntarily terminated on September 30, For example, if an AEI was involuntarily terminated on September 30, 2008 and did not elect to continue coverage at that time:2008 and did not elect to continue coverage at that time:

he gets a notice by April 18, 2009;he gets a notice by April 18, 2009; he has 60 days after date of notification of this new election right to he has 60 days after date of notification of this new election right to

elect coverage;elect coverage; his coverage will start March 1, 2009;his coverage will start March 1, 2009; the subsidy will kick in March 1, 2009;the subsidy will kick in March 1, 2009; the subsidy will end November 30, 2009, assuming no early the subsidy will end November 30, 2009, assuming no early

termination event;termination event; coverage will end March 31, 2010 (18 months following September 30, coverage will end March 31, 2010 (18 months following September 30,

2008 – the regular COBRA period), assuming no early termination 2008 – the regular COBRA period), assuming no early termination event.event.

The AEI will have 45 days from the date of election to make premium The AEI will have 45 days from the date of election to make premium payment.payment.

For purposes of preexisting condition exclusions, the period between For purposes of preexisting condition exclusions, the period between September 30, 2008 and March 1, 2009 is not counted against the AEI September 30, 2008 and March 1, 2009 is not counted against the AEI for purposes of preexisting condition exclusions (i.e., the 63-day break for purposes of preexisting condition exclusions (i.e., the 63-day break in coverage).in coverage).

ReimbursementReimbursement The employer is reimbursed by the amount of the The employer is reimbursed by the amount of the

premium that it pays on account of the subsidy. To the premium that it pays on account of the subsidy. To the extent that such employer has liability for income tax extent that such employer has liability for income tax withholding from wages or FICA taxes with respect to its withholding from wages or FICA taxes with respect to its employees, the employer is reimbursed by treating the employees, the employer is reimbursed by treating the amount that is reimbursable to the employer as a credit amount that is reimbursable to the employer as a credit against its liability for these payroll taxes. To the extent against its liability for these payroll taxes. To the extent that the amount exceeds the amount of tax liability, the that the amount exceeds the amount of tax liability, the IRS will credit or refund such excess in the same manner IRS will credit or refund such excess in the same manner as if there were an overpayment of taxes. Any as if there were an overpayment of taxes. Any overstatement of the reimbursement amount is treated overstatement of the reimbursement amount is treated as an underpayment of payroll taxes and employers may as an underpayment of payroll taxes and employers may be assessed and collected by the IRS in the same be assessed and collected by the IRS in the same manner as it does for payroll taxes.manner as it does for payroll taxes.

For non-COBRA (e.g., state continuation) fully insured For non-COBRA (e.g., state continuation) fully insured coverage, the carrier takes the credit.coverage, the carrier takes the credit.

For multiemployer plans, the plan takes the credit.For multiemployer plans, the plan takes the credit.

Reimbursement (cont.)Reimbursement (cont.)

No payroll tax credit may be claimed No payroll tax credit may be claimed until the reduced premium (35%) has until the reduced premium (35%) has been received for an AEI.been received for an AEI.

An employer can decide either to An employer can decide either to offset its payroll tax deposits or claim offset its payroll tax deposits or claim the subsidy as an overpayment at the subsidy as an overpayment at the end of the quarter. the end of the quarter.

Amounts are claimed on revised Amounts are claimed on revised Form 941.Form 941.

Employer Notice to IRSEmployer Notice to IRSEmployers entitled to reimbursement may be required to submit a report Employers entitled to reimbursement may be required to submit a report

with:with: Information on the receipt, including dates and amounts, of the AEIs’ 35% Information on the receipt, including dates and amounts, of the AEIs’ 35%

share of the premium.share of the premium. In the case of an insured plan, copy of invoice or other supporting In the case of an insured plan, copy of invoice or other supporting

statement from the insurance carrier and proof of timely payment of the statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA.full premium to the insurance carrier required under COBRA.

In the case of a self-insured plan, proof of the premium amount and proof In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the AEIs.of the coverage provided to the AEIs.

Attestation of involuntary termination, including the date of the Attestation of involuntary termination, including the date of the involuntary termination (which must be during the period from September involuntary termination (which must be during the period from September 1, 2008, to December 31, 2009), for each covered employee whose 1, 2008, to December 31, 2009), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.involuntary termination is the basis for eligibility for the subsidy.

Proof of each AEI’s eligibility for COBRA coverage at any time during the Proof of each AEI’s eligibility for COBRA coverage at any time during the period from September 1, 2008, to December 31, 2009, and election of period from September 1, 2008, to December 31, 2009, and election of COBRA coverage.COBRA coverage.

A record of the SSN’s of all covered employees, the amount of the subsidy A record of the SSN’s of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the reimbursed with respect to each covered employee, and whether the subsidy was for 1 individual or 2 or more individuals.subsidy was for 1 individual or 2 or more individuals.

Other documents necessary to verify the correct amount of Other documents necessary to verify the correct amount of reimbursement.reimbursement.

Employer Notice to IRS (cont.)Employer Notice to IRS (cont.)

A report must be submitted at such time A report must be submitted at such time and in such manner as the IRS requires. and in such manner as the IRS requires. Guidance on this timing and form issue is Guidance on this timing and form issue is needed quickly. There is not a current needed quickly. There is not a current mechanism to submit such information mechanism to submit such information under the current payroll tax deposit rules, under the current payroll tax deposit rules, nor under the quarterly employment tax nor under the quarterly employment tax returns.returns.

Form W-2 will likely be amended to Form W-2 will likely be amended to contain a box for the subsidy amount.contain a box for the subsidy amount.

DenialsDenials

If individuals request treatment as If individuals request treatment as AEIs and are denied such treatment, AEIs and are denied such treatment, they can request an expedited they can request an expedited review from the DOL (or the Health review from the DOL (or the Health and Human Services (“HHS”) in and Human Services (“HHS”) in connection with non-COBRA connection with non-COBRA continuation) in consultation with the continuation) in consultation with the IRS.IRS.

WebsitesWebsites

The IRS website is: The IRS website is: http://www.irs.gov/newsroom/article/http://www.irs.gov/newsroom/article/0,,id=204505,00.html0,,id=204505,00.html

The DOL website is: The DOL website is: http://http://www.dol.gov/ebsa/cobra.htmlwww.dol.gov/ebsa/cobra.html

Action ItemsAction Items Attend this seminar.Attend this seminar. If applicable, discuss these requirements with your COBRA If applicable, discuss these requirements with your COBRA

administrator to ensure it has the proper notices and reporting process administrator to ensure it has the proper notices and reporting process in place to assist you in your compliance obligations.in place to assist you in your compliance obligations.

Discuss subsidy reporting with your payroll department or payroll Discuss subsidy reporting with your payroll department or payroll vendor.vendor.

Review all the individuals with qualifying events on and after Review all the individuals with qualifying events on and after September 1, 2008 to determine who gets a notice. September 1, 2008 to determine who gets a notice.

Review all the individuals that terminated employment on and after Review all the individuals that terminated employment on and after September 1, 2008 and determine who was involuntarily terminated.September 1, 2008 and determine who was involuntarily terminated.

If applicable, determine whether you will make alternative coverage If applicable, determine whether you will make alternative coverage options available.options available.

Look out for additional guidance.Look out for additional guidance. Be prepared to send out notices by April 18, 2009.Be prepared to send out notices by April 18, 2009. Be prepared to track qualified beneficiaries receiving the subsidy.Be prepared to track qualified beneficiaries receiving the subsidy. Be prepared to collect waivers from highly compensated individuals Be prepared to collect waivers from highly compensated individuals

forgoing the subsidy.forgoing the subsidy. Be prepared to comply with the proper reporting requirements to the Be prepared to comply with the proper reporting requirements to the

IRS.IRS.

Questions?Questions?

Contact InformationContact Information

Wendy C. Carmichael ▪ USI Wendy C. Carmichael ▪ USI SouthwestSouthwestwendy.carmichael@usi.bizwendy.carmichael@usi.biz713-490-4730713-490-4730