COBRA Law Changes Affect Employers
Responding to increasing unemployment resulting from the current economic conditions, the United States Congress has made changes to the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA.
Provisions in the American Recovery and Reinvestment Act of 2009 (“the Act”), which became law on February 17, 2009, affect COBRA law in three primary ways: (1) it reduces the contribution amount that certain qualified beneficiaries must make to obtain COBRA continuation health coverage, (2) it requires employers to become responsible for a portion of the contribution amount; however, it provides a subsidy to employers for their portion of the cost of coverage and, (3) it adds new requirements for notices that must be provided to COBRA qualified beneficiaries.
As a provider of COBRA Administration services, Savers Administrative Services is pleased to provide this information. For more information on our COBRA Administration services, please contact Savers at 800-949-0311 or email COBRA@saversadmin.com.
Who and What is Affected, and When Does it Become Law? The changes affect the federal COBRA law as well as state continuation coverage laws. COBRA law is applicable to employers with 20 or more employees. State continuation laws, which are sometimes referred to as “mini-COBRA” laws, cover employers with fewer than 20 employees. The changes, which became effective on February 17, 2009, apply to public and private employers alike.
What Qualifying Events are Affected? The new provisions apply only to qualified beneficiaries who have experienced a qualifying event of involuntary termination of employment. Generally speaking, an involuntary termination would be one in which the employer is taking an action that results in an employee being terminated.
The new provisions also apply to all dependents of the qualified beneficiary. Employees who experience a reduction in hours or voluntarily resign employment are not eligible for premium assistance under the Act, and individuals experiencing a second qualifying event (divorce, loss of dependent status, etc.) are not eligible for premium assistance under the Act. What Coverage is Subject to the Act? The Act applies to medical, dental, vision, and HRA plans. It does not apply to health Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs).
When Must the Qualifying Events Occur? Only qualifying events of involuntary termination occurring between September 1, 2008, and May 31, 2010, trigger the additional COBRA rights under the Act. Nothing under the Act, however, changes the length of available COBRA coverage (18, 29 or 36 months).
How Do Premiums Change? Under normal circumstances, the total cost of COBRA coverage is the responsibility of the qualified beneficiary. Under the new laws, only 35 percent of the cost is passed to the qualified beneficiary. The employer must pay the remaining 65 percent of the total cost. The employer is responsible for 65 percent of the total cost for 15 months of the COBRA period. After the 15 months the total premium cost becomes the sole responsibility of the qualified beneficiary.
Can the Employer Recoup this Additional Expense? The employer is entitled to a refundable credit toward payroll taxes for its 65 percent share of premiums. The credit may be taken as long as the qualified beneficiary's premium payment has been actually received by the employer or other authorized payee (such as Savers Administrative Services if we are your company's COBRA Administrator). The Act specifically lists the information that the employer must submit to the IRS in order to obtain reimbursement. The employer is responsible for submitting the required documentation directly to the IRS or to their payroll provider.
If Savers Administrative Services provides Payroll Services to your company you can be assured that we will work closely with you to collect the necessary data on each qualifying beneficiary and ensure that the required documentation is submitted to the IRS as stipulated by the Act.
How Should the Premium Change be Implemented? Qualified beneficiaries who experienced a qualifying event on or after September 1, 2008, but before the COBRA changes became effective on February 17, 2009, are entitled to 15 months of future coverage at a 35 percent premium contribution level.
What about Qualifying Events Prior to February 17, 2009? The Act stipulates that premium assistance will begin on or after February 17, 2009. Therefore, the change in premium contributions is not retroactive for coverage prior to that date. Since most premiums are on a monthly basis, the inferred effective date is March 1, 2009. Employers must implement the new premium contribution assistance plan as soon as administratively feasible; however, the effective date will be March 1, 2009 regardless of the employer's actual implementation date.
When Does Coverage Begin if Elected During the Extended Election Period? Coverage will begin on or after February 17, 2009; but, as described above, typically it will be March 1, 2009.
Does Insurance Coverage “Reach Back” to September 1, 2008? Insurance coverage will begin on the first day of the extended election period. There is no “reach back” on insurance coverage. Should a qualified beneficiary choose to elect coverage during the extended election period their insurance coverage will be prospective only; it will not cover expenses incurred prior to their election date.
When Does the Premium Change End? The 35 percent premium contribution level for qualified beneficiaries ends 15 months after an employer implements the changes in the Act. The 35 percent premium contribution level also ends when a qualified beneficiary becomes eligible for coverage under another group health plan or Medicare, even if that is before the end of the 15-month window. The Act states that the qualified beneficiary is obligated to notify the employer or its COBRA administrator if they become eligible for subsequent coverage. The Act spells out specific penalties for the qualified beneficiary who fails to provide such notice.
Is Anyone Excluded From the Premium Change? Qualified beneficiaries with federal modified adjusted gross income of more than $125,000 (single) or $250,000 (married) may not be eligible for the 35 percent premium contribution. Please contact Savers for more information if you have a qualified beneficiary in this income bracket.
How Do Employers Notify Qualified Beneficiaries? For employers with COBRA Administration provided by Savers Administrative Services, we will prepare the necessary documents and mail them to qualifying beneficiaries who are eligible for premium assistance. It is the responsibility of the Employer to ensure that Savers is made aware of all qualified beneficiaries who were involuntarily terminated. (This is discussed further below.)
To Whom Must the Notices be Sent? The new regulations require employers to offer an additional COBRA election period to any individual who became a qualified beneficiary due to involuntary termination on or after September 1, 2008, and who would be eligible for the reduced premiums if he or she were enrolled as of the effective date of the Act. The additional election period must be offered to individuals who previously declined COBRA coverage as well as to individuals who elected and then terminated COBRA coverage. It is important to note that individuals who previously declined COBRA coverage or elected and terminated it have another opportunity to elect it under the new premium arrangement.
In addition, the Act also requires employers to notify any individual who became a qualified beneficiary due to any event other than involuntary termination on or after September 1, 2008. This notice must inform the qualified beneficiary of the changes in COBRA law, and then inform them that their particular circumstances do not qualify them for premium assistance. The notice must also explain the steps they may take should they wish to challenge the determination.
What are the Notice Requirements? The additional election period began February 17, 2009, and it ends 60 days after the employer provides an appropriate notice to the qualified beneficiary. These notices must include a description of the new premium arrangement, its duration, and the option to enroll in different coverage if the employer normally permits COBRA qualified beneficiaries to enroll in different coverage. The new Act requires employers to send out the additional election period notices within 60 days of the effective date of the Act, or by April 18, 2009. For employers with COBRA Administration provided by Savers Administrative Services, we will ensure that the required notices are mailed by the appropriate deadlines.
Savers Administrative Services wishes to assure our COBRA Administration clients that we are working with our legal counsel and advisors to ensure that all regular COBRA notices for upcoming qualifying events incorporate revised language to cover the new 35 percent premium contribution level and the 15-month duration of that level. Notices to individuals experiencing a qualifying event after February 17, 2009 are still governed by the normal response period (generally a maximum of 60 days to respond and an additional 44 days to remit payment).
How Do the HIPAA Preexisting Condition Rules Apply? The 63-day rule shall not apply during this extended election period. The extended period of coverage is to be offered without regard to the 63-day break-in-coverage rules of HIPAA.
What Does an Employer Need to Do? Although these changes to employer obligations under COBRA are temporary, they are significant and affect almost every employer in some way. You should begin reviewing your COBRA policies and practices immediately to comply with these new requirements.
For employers with COBRA Administration provided by Savers Administrative Services, we will work closely with you to ensure that your company remains in compliance with the new requirements.
The first steps in this process are for employers to review all qualifying events that occurred on or after September 1, 2008, and then identify which ones were due to involuntary termination.
Going forward, companies for whom Savers provides COBRA Administration, we ask you to please download our newly revised COBRA Qualifying Event Notification form and our Notice of New Employee form, and begin using them immediately. (These forms are also available for download on the Forms page of this web site.)
If you have questions or if you need assistance with the changes in the COBRA regulations or if you would like more information about our COBRA Administration or our Payroll Services, please contact Savers Administrative Services at 800-949-0311, or email COBRA@saversadmin.com.
Need help? Contact Savers Administrative Services.
(336)759-3888
(800)949-0311
COBRA@saversadmin.com
Portions of the above information are reprinted with permission from Constangy, Brooks & Smith, LLP, counseling employers and benefit administrators since 1946. Savers wishes to thank them for allowing us to provide the information to you.
Please understand that this material is provided for informational purposes only. It is not intended to constitute legal advice or to substitute for obtaining legal advice from a licensed attorney. |
