American Recovery and Reinvestment Act of 2009 and Changes in COBRA

What happened: President Obama signed the American Recovery and Reinvestment Act of 2009 on February 17, 2009. For employers, and HR professionals specifically, Title III of the Act - Health Insurance Assistance for the Unemployed - provides offsets for COBRA coverage to employees who were involuntarily terminated (fired or laid off, unless terminated for gross misconduct) between September 1, 2008 and December 31, 2009. It also adds a required notice to employees, some employer reporting requirements, impact on Cal-COBRA, additional funds for individuals collecting unemployment insurance and increased the pretax commuter benefit amount.

Note: These new requirements implicate the Internal Revenue Code, ERISA and other federal laws that are complex with detailed requirements. In addition, a full analysis of these new requirements is not yet complete so there is significant confusion in this area. As such, it is imperative that you consult with a specialist in this area to fully understand your obligations under this new law.

The federal stimulus package may also influence how businesses handle Unemployment Insurance and Commuter Benefits.

COBRA Subsidy

The bill provides COBRA payment assistance for up to 65 percent of the premium for employees involuntarily terminated by their employers, starting March 1, 2009 for a maximum of nine months. The payment will be offset through payroll taxes. If an individual had paid the full COBRA premium for the first 60 days after February 17, 2009 (the date of the bill's enactment), employers must reimburse the individual for any premium paid in excess of 35 percent or provide a credit to the individual to reduce one or more of the individual's premium payment. These employers will be reimbursed by the federal government. According to the IRS, employers may pay the regular premium amount for up to two months after enactment (e.g., for March and April), and the subsidy can be provided retroactively.

New, Required COBRA Notices: Employers must either amend or include an additional notice with COBRA notifications to employees. Model notifications are available from the Department of Labor.

The DOL has posted these model notices:

1. Model General Notice (Full Version)
   
   • For use by group health plans for qualified beneficiaries who have not yet received an election notice and with qualifying events occurring between September 1, 2008 and December 31, 2009.
2. Model General Notice (Abbreviated Version)
   
   • For use by group health plans for qualified beneficiaries currently enrolled in COBRA coverage with qualifying events that occurred on or after September 1, 2008 to advise them of the availability of the premium reduction.
3. Model Notice in Connection with Extended Election Periods
   
   • For use by group health plans for qualified beneficiaries who are or would be an Assistance Eligible Individual (AEI) but are not enrolled on COBRA coverage (including those who never elected and those who elected but subsequently discontinued coverage) with qualifying events that occurred during the period from September 1, 2008 through February 16, 2009.
4. Model Continuation Coverage Election Notice
   
   • For use where coverage is subject to State continuation requirements during the period that begins with September 1, 2008 and ends with December 31, 2009. (Includes Cal-COBRA)

The Model Notice Requirements: Each notification under subparagraph shall include:

• The forms necessary for establishing eligibility for premium reduction,
• The name, address, and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with such premium reduction,
• A description of the extended election period provided for in paragraph,
• A description of the obligation of the qualified beneficiary to notify the plan providing continuation coverage of eligibility for subsequent coverage under another group health plan or eligibility for benefits under the Social Security Act,
• The penalty provided under section 6720C of the Internal Revenue Code of 1986 for failure to so notify the plan,
• A description, displayed in a prominent manner, of the qualified beneficiary's right to a reduced premium and any conditions on entitlement to the reduced premium, and
• A description of the option of the qualified beneficiary to enroll in different coverage if the employer permits such beneficiary to elect to enroll in such different coverage.

Involuntary Termination: The Act does not define “involuntary termination” although regulations, not yet issued, will likely address this. In the meantime, you should include a definition of how your company defines “involuntary termination,” in your employee handbook, if you do not already have such a definition, and notify employees of this addition. Consult with legal counsel about how to define this for your company.

Employer Reporting Requirements: The COBRA subsidy amount is reimbursed by being claimed as a credit on the Form 941. The Form 941 has been revised to allow for this credit. The credit is claimed on Line 12a of the January 2009 revision of the Form 941, which was posted on the IRS website on Feb. 20. In addition, the person who files the Form 941 also needs to include the number of individuals provided COBRA premium assistance on Line 12b. See IRS website for more details.

The IRS also recommends maintaining records of the following:

• Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35 percent share of the premium.
• 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 full premium to the insurance carrier required under COBRA.
• In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals.
• Attestation of involuntary termination, including the date of the involuntary termination, for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.
• Proof of each “assistance eligible individual’s” eligibility for COBRA coverage at any time during the period from September 1, 2008, to December 31, 2009, and election of COBRA coverage.
• A record of the Social Security Numbers of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.
• Other documents necessary to verify the correct amount of reimbursement.

Cal-COBRA

Employers with two to19 employees covered by Cal-COBRA are impacted by this new law as well. However, the premium repayment will be handled through your insurance carrier instead of through your payroll system. It is still unclear the specific impact this law will have on Cal-COBRA, so it is imperative to get guidance from legal counsel regarding how these changes will impact your business. Employers should still document all employees involuntarily terminated since September 1, 2008 to provide this information to their insurance carrier.

The IRS has issued guidance (see www.IRS.gov for additional information.)

What Should You Do NOW for COBRA?

• Consult with legal counsel regarding how or if your company wishes to define “involuntary termination” for purposes of the COBRA subsidy.
• Set up Spreadsheet with all terminations on or after 9/1/2009, eligible beneficiaries, eligibility period, and reasons for termination, election decision, COBRA amounts, and amount after subsidy for all eligible workers. (If employee made more than $125,000 or combined employee/spouse made more than $250,000, ineligible for subsidy.)
• Document all employees involuntarily terminated since September 1, 2008.
• Not later than 4/17/09: Send the appropriate notice (return receipt requested) to all COBRA eligible individuals since September 1, 2008 regardless of whether they are currently receiving COBRA benefits.
• Follow your current process for notifying employees of their rights for UI benefits – provide the Notice to Employee as to Change in Relationship form and the For Your Benefit Pamphlet.

Resources:
www.DOL.gov U.S. Department of Labor
www.hrcalifornia.com California Chamber of Commerce

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