1 COBRA PREMIUM ASSISTANCE After the Economic Stimulus Bill Wednesday, February 25, 2008 Erwin D. Kratz Director and Shareholder Fennemore Craig, PC One.

1

COBRA PREMIUM ASSISTANCE

After the Economic Stimulus BillWednesday, February 25, 2008

Erwin D. Kratz Director and ShareholderFennemore Craig, PC

One South Church Avenue, Suite 1000Tucson, AZ 85701-1627

Tel: 520.879.6401 | Tel: 602.916.5098Fax: 520.879.6598 | Mobile: 520.245.8864

Email: [email protected]

2

Housekeeping

• Your telephone has been muted

• Email your questions to [email protected] during the webinar

• We will answer as many questions as we can at the end of the webinar

3

COBRA Premium Assistance

• Assistance Eligible Individual who pays 35% of COBRA premium is treated as having paid all of the premium– Must be paid by employee or someone else (other than

their employer)• Premium Assistance = 65%

– Fronted by recipient of COBRA premiums– Recovered by reimbursement or credit against payroll

taxes owed on quarterly Form 941• Effective for Assistance Eligible Individual as of

first period of coverage beginning on or after date of enactment (February17, 2009)

4

Individual is Eligible for Assistance if All of the Following Satisfied:

• Eligible for COBRA at any time between September 1, 2008 and December 31, 2009

• Elects COBRA coverage• Qualifying event was involuntary termination

of employment between September 1, 2008 and December 31, 2009

– Unclear: volunteered for layoff?– Mutual agreement for resignation?– Constructive discharge?

5

Expedited Review of Decision Regarding Eligibility for Assistance

• DOL, in consultation with Treasury, to provide for expedited review if employer denies eligibility for assistance

• DOL decides within 15 days after application for review

• Review is de novo and decision is final. Reviewing court gives deference to DOL decision

6

Premium Assistance Ends on the Earliest of:

• Eligibility for Medicare

• Eligibility for another group health plan

– Note: this does NOT end COBRA coverage unless actual enrollment in another group plan

• 9 months after assistance begins

• When COBRA coverage otherwise ends

7

Assistance Eligible Individual Must Give Employer Notice if:

• Eligible for Medicare

• Eligible for another group health plan– These are triggers that end entitlement

to premium assistance

8

Penalty for Failure to Give Notice

• DOL can impose penalty = to 110% of the assistance provided after eligibility ended

• Exception if failure to give notice due to reasonable cause and not willful neglect

9

New COBRA Election Right for Assistance Eligible Individuals

• Individuals who do not have an existing COBRA election in place on February 17, 2009 get an extended right to elect COBRA continuation coverage if they would otherwise be eligible for COBRA premium assistance

• Must satisfy all three of the following requirements:– Were eligible for COBRA continuation coverage at any time

between September 1, 2008 and February 17, 2009; and – The qualifying event was a covered employee’s involuntary

termination of employment between September 1, 2008 and February 17, 2009; and

– Did not have a COBRA continuation coverage election in effect on February 17, 2009

10

New COBRA Election Right for Assistance Eligible Individuals

• New election period starts on date of enactment and ends 60 days after receipt of notice of new election right

• Coverage starts from first period of coverage starting after date of enactment

– “Period of coverage” = period upon which premiums are based

– March 1, 2009 in most cases

• Coverage ends when it would have if COBRA were originally elected

11

Relief from Preexisting Condition Exclusion for Certain Individuals

• For anyone who elects COBRA using the extended election period:

– The period from date of qualifying event until beginning of first coverage period after February 17, 2009 does not count toward 63 day exclusion period from break in coverage rules

– Effect: adverse selection period is expanded until 60 days after notice of new election right

12

Optional Plan Enrollment Change • Employer may (but is not required to) permit Assistance

Eligible Individual to enroll in less expensive coverage option

– Must be medical coverage also offered to active employees

> Can’t be only dental, vision, counseling or referral services

> Can’t be a flexible spending arrangement

• Assistance Eligible Individual has 90 days after notice of enrollment change option to make the change

13

Notice Requirements• COBRA election notice must include notice of availability of

premium reduction• Also include notice of option to enroll in different coverage (if

elected by employer)• Notice must be given within 60 days of enactment to anyone who

became entitled to elect COBRA between 9/1/08 and 2/17/09• Notice must be provided with regular COBRA notice for anyone

who becomes entitled to elect COBRA between 2/18/09 and 12/31/09

• Failure to timely provide these additional notices is treated as a failure to provide COBRA notice

• Can be incorporated into existing COBRA notices or as a stand alone. Stand alone is likely more flexible and new requirements may not be permanent

• DOL to provide model notices within 30 days after enactment

14

Notice Must Include Forms necessary to establish eligibility for premium

reduction Name, address and telephone number of Plan

Administrator to contact regarding premium reduction Description of extended election period for Assistance

Eligible Individuals who became entitled to COBRA before date of enactment

Description of qualified beneficiary’s obligation to notify plan of eligibility for another group plan or eligibility for Medicare and penalty for not doing so

Description of right to reduced premium and conditions on that entitlement

Description of right to enroll in different coverage (if available)

15

Reimbursement for Premium Assistance

• Who gets reimbursement?– Multiemployer group health plan – the Plan– Group health plan under which some or all of the coverage not

provided by insurance – the Employer– Fully insured group health plan – the Insurer

• Reimbursement via credit against payroll taxes– Claimed on quarterly Form 941

• Payment of COBRA premium is treated as payment of payroll tax on date Assistance Eligible Individual’s reduced premium is received

• If credit exceeds payroll liability, employer gets credit or refund as if it had overpaid payroll taxes

• Overstatement of reimbursement equals underpayment of payroll taxes

16

Payroll Taxes:

• Wage withholding under Code Section 3402

• FICA tax payments (both employer and employee portions)

17

Reporting Requirements

• Person entitled to reimbursement must report to IRS: – Attestation as to involuntary termination for each

employee for whom reimbursement is claimed– Amount of payroll taxes offset for reporting period and

estimate of offsets for the subsequent reporting period– Taxpayer ID nos. of all covered employees – Amount of subsidy reimbursed with respect to each

employee and qualified beneficiary– Whether the subsidy reimbursement was for single

coverage or coverage for 2 or more individuals

• Reporting period not determined yet

18

Treasury to Issue Regulations or Guidance Regarding:

• Reporting requirements

• Application of reimbursement provisions to multiemployer plans (because plan, not employer or insurance company, gets reimbursement for subsidy)

19

Transition Issue

• If Assistance Eligible Individual pays 100% of COBRA Premium for First or Second Coverage Period After Enactment Employer must either:

– Reimburse excess payment to the individual OR

– Credit the individual with the excess to reduce 1 or more future payments (if it is reasonable to believe the credit will be used within 180 days)

20

Tax Treatment of Premium Assistance

• Premium Assistance is excluded from Gross Income if taxpayer’s Modified Adjusted Gross Income is $125,000 or less ($250,000 for joint return)

• Otherwise, assistance is added to tax owed (“Recapture of Subsidy”)

– Recapture is phased in from $125,000-$145,000 ($250,000 - $290,000 for joint return)

• Assistance can be waived (to avoid recapture) – Waive by notifying entity to whom reimbursements

would be paid– Election to waive is permanent

21

Issues and Action Items • Identify who has become eligible to elect

COBRA since September 1, 2009– Who did you terminate involuntarily?– Who elected COBRA– Who has not elected COBRA

• Determine whether to allow Assistance Eligible Individuals to enroll in less expensive coverage option

– Consider COBRA administration complexity (can’t give new coverage option to COBRA eligible individual who is not eligible for assistance)

– Would new coverage option apply to Assistance Eligible Individual who waives assistance?

22

Issues and Action Items(Cont’d.)

• Generate new COBRA notice and forms to establish eligibility for assistance

– Consider whether form for establishing eligibility should include preliminary determination as to whether termination was involuntary (to expedite final determination)

– Consider whether to include notice of option to waive assistance

– Consider adverse selection implications of waiting to distribute new notice (because of 60 day election period and coverage is retroactive to first coverage period beginning after date of enactment)

23

Issues and Action Items(Cont’d.)

• Careful with determination of eligibility for assistance

– If you determine eligible, but they are not:

> May under pay payroll tax

– If you determine not eligible, but they are:

> Need to give supplemental notice anyway

> Adverse selection period is expanded

– If dispute as to eligibility for assistance consider encouraging expedited review (to get certainty)

24

Issues and Action Items(Cont’d.)

• Develop Procedures for Adjusting Premium Notices

– Only charge 35% of COBRA premium (35.7% of active employee total premium) for Assistance Eligible Individuals

– Remember to increase premium when assistance period ends

– Check before terminating COBRA for non-payment of premiums

25

Issues and Action Items(Cont’d.)

• Develop Procedures for Reimbursement– Ensure actual receipt of COBRA payment before

claiming credit against payroll taxes

– Maintain record of reimbursement claimed for > Each individual

> Whether for individual coverage or coverage for 2 or more people

> Each month (for reporting purposes)

– Include review of whether any Assistance Eligible Individuals paid full COBRA cost for coverage period starting after February 17 and if so, give credit

26

Issues and Action Items(Cont’d.)

• What if you are already paying COBRA premiums for terminated employees?– Paying 100% of the premium– Reimbursing the employee for their payments– Renegotiate severance agreements?

27

Issues and Action Items(Cont’d.)

• What if someone is eligible for the extended election period and is still in their original election period?– When does coverage begin?

• original date (if elect COBRA coverage within original period)

• next coverage period (is use extended election period)

– Complicates the Notice and election forms

28

Issues and Action Items(Cont’d.)

• What Happens January 1, 2010?– Termed December 2009 – get 9 months

of premium assistance– Termed January 2010 – get no

assistance– Does this encourage layoffs in

December 2009?– Is this really a temporary program?

29

Questions?

Email your questions to [email protected]