Department of Labor Announces that Sample Notices for Extended COBRA Subsidy Will Be Forthcoming

Posted on January 14, 2010 by Jamie LaPlante

As you will recall from my earlier post, Congress and the President extended the COBRA subsidy, originally a part of the American Recovery and Reinvestment Act of 2009 (ARRA) (the stimulus bill), to individuals involuntary terminated through February 28, 2010 (from December 31, 2009) and the length of the subsidy to 15 months (from 9 months). 

This COBRA subsidy extension will require new notices be sent to individuals involuntarily terminated (and otherwise qualifying under ARRA as an “assistance eligible individual” (AEI)). These model notices were released yesterday, and, in many cases, AEIs must be notified by February 17, 2010. The Department of Labor revised its General Notice to reflect the COBRA subsidy extension. This notice is to be used for all AEIs who have not already received a general COBRA notice. The Department of Labor also issued a model Premium Assistance Extension Notice to be provided to:

  1. Individuals qualifying as AEIs as of October 31, 2009 and individuals who experienced a termination of employment on or after October 31, 2009 and lost health insurance coverage (unless they were already provided a timely, updated General Notice). This notice must be provided by February 17, 2010.
  2. a) Individuals whose original 9 months of COBRA subsidy ended prior to December 19, 2009 and who are still eligible for some portion of the extended 15 months of COBRA subsidy and (b) individuals whose 9 months of COBRA subsidy ends or ended after December 19, 2009. These individuals must be notified within 60 days of the termination of the 9 month COBRA subsidy period or, for individuals whose COBRA subsidy ended prior to December 19, 2009, prior to February 17, 2010. 

Both model notices are available at: http://www.dol.gov/ebsa/COBRAmodelnotice.html. In addition, the Department of Labor has updated its fact sheets, posters, and frequently asked questions available at: www.dol.gov/COBRA.

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Congress Extends COBRA Premium Subsidy

Posted on December 23, 2009 by Jamie LaPlante

The much-publicized COBRA subsidy contained in the American Recovery and Reinvestment Act (ARRA), commonly known as the “stimulus bill,” has been extended and expanded by Congress through House Resolution 3326. Under ARRA, individuals who were involuntarily terminated and became eligible for COBRA benefits between September 1, 2008 and December 31, 2009 were eligible for 9 months of subsidized COBRA premiums. The government, through a payroll tax rebate to employers, paid 65% of an eligible employee’s COBRA premiums for 9 months. This meant that employees could pay just 35% of what they would ordinarily pay for COBRA benefits. (Please see our earlier blog posting relating to the original passage of ARRA.)

HR 3326 expands the eligibility period to include individuals involuntarily terminated before February 28, 2010. In addition, it extends the length of the subsidy period to 15 months (from 9 months). 

 

Individuals who were on COBRA coverage for the 9-month subsidy, may re-enroll in COBRA and receive benefits without any gap in coverage for the newly extended 15 months, less the 9 months they already received. The amendment gives employees a period of 60 days to re-enroll or, if later, 30 days after they receive notice of the extended subsidy. Employers are required to notify employees of the 15-month extended COBRA subsidy who were on COBRA on or after October 31, 2009 or who have a qualifying event on or after October 31, 2009. It is unclear how long of a COBRA coverage lapse can exist before an individual is no longer eligible to make up the premiums and re-enroll. We will be watching for further guidance form the DOL on this point and reporting further on the blog. Any employees who paid full COBRA premiums after expiration of their 9-month subsidy period who are now eligible for the new 15-month premium subsidy, will be given a refund of 65% of their premiums for any periods now covered by the extended subsidy. 

In addition, this amendment to ARRA conditions the eligibility for the subsidy on only the involuntary termination date. Thus, if the COBRA start date is deferred until after February 28, 2010 but the involuntary termination date was pre-February 28, the employee will still be eligible for the subsidy. All of the remaining rules for the COBRA subsidy set forth by the Department of Labor presumably remain in effect for this extension and expansion.

 

We will update you as more details become available on this COBRA subsidy extension from the Department of Labor. In the meantime, here are some action items to be thinking about:

 

  • Identify all individuals who were on COBRA coverage on or after October 31, 2009 or had a COBRA qualifying event on or after October 31, 2009 and would be eligible for notice of the 15-month subsidy.
  • Identify any individuals who allowed COBRA coverage to lapse after the termination of the 9-month COBRA subsidy.
  • Identify any individuals who paid their full COBRA premiums because of the expiration of the subsidy and will now be eligible for a refund or credit on future premiums.
  • Watch for new sample notices from the Department of Labor reflecting these changes. We will post a link to these notices when they are available.
  • Informally notify employees who are involuntarily terminated between now and when the COBRA notices are distributed about the existence of the extended COBRA subsidy to avoid confusion in the interim.
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Missed Our Recent COBRA Webinar? Listen to the Recording

Posted on April 10, 2009 by Erin Hawk

Webinar Recording: 
COBRA Premium Subsidy: Action Steps Required to Avoid Problems

Under the recent economic stimulus act, virtually every employer that maintains a health plan, including small employers that are not subject to federal COBRA rules but are subject to a state law continuation of medical coverage requirement, must comply with new COBRA premium subsidy rules. Potentially eligible individuals must be identified and notices must be distributed by April 18, 2009.

It is critical that employers understand the requirements and steps that are needed given the following:

  • the immediate cash flow demand on many employers;
  • the discretion that has been granted to the Department of Labor to hear appeals;
  • the ongoing and extensive documentation requirements and risk of audit; and
  • the substantial penalties for failure to comply.

Ann Caresani, Mike Underwood and Jim Prior from Porter Wright, along with Sean Kelley from BGS Associates discussed the impact of the stimulus on COBRA on April 1, 2009. 

If you were unable to participate in the webinar, we invite you to listen to the recording by clicking on the link below.  We hope you find it helpful.

Webinar Recording: 
COBRA Premium Subsidy: Action Steps Required to Avoid Problems

 

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IRS COBRA Guidance: What is an "Involuntary Termination?" Potential Disputes Lurk in Definitions

Posted on April 6, 2009 by Mike Underwood

On Tuesday, March 31, 2009, the IRS issued its Notice 2009-27 providing additional guidance under the American Recovery & Reinvestment Act of 2009 (“ARRA”) relating to premium subsidies for COBRA coverage. The Notice addresses a number of issues, including the question of who is eligible for the subsidy, the method for calculating the premium reduction, and the length of the entitlement to the subsidy. [View the notice here.]

Of particular interest to employers is the guidance concerning what will be considered an “involuntary termination” entitling persons to the premium subsidy. The IRS gives this broad definition: “An involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” Although it is a mouthful, that sounds simple enough. But, further language in the guidance and some of the specific examples show that there is plenty of room for disagreement about what is an involuntary termination. Of particular interest is language saying that the government will consider a resignation to be an involuntary termination if the resignation is “due to employer action that causes a material negative change in the employment relationship for the employee.”

This opens the door for some interesting possible disputes. Consider an employee who claims to have quit because of sex harassment. In some cases, an employee who resigns in response to severe harassment can sue the employer just as if she or he was terminated. It is called “constructive discharge.” The employer might argue either that the harassment did not occur or that what did occur was not sufficiently severe to support a “constructive discharge” claim. This sort of dispute sometimes is the subject of litigation that lasts for months or even years. Yet, under the COBRA subsidy provisions, the Department of Labor may end up making a decision on the dispute within the 15-day period set up to appeal disputes over what is an “involuntary termination.” The IRS guidance states that determinations of involuntary termination for purposes of ARRA are “not for any other purposes under the Code or any other law.” Nevertheless, employers should use a great deal of caution in characterizing any termination as “involuntary” unless the employer is convinced that it is an actual termination as a result of employer-initiated actions.

 

Here are a few other examples of involuntary termination issues:

1.         An employee with performance problems is confronted by the employer with an option: either quit or we will terminate you. 

  • The IRS guidance says this is considered an involuntary termination, regardless of whether it is called “resignation.” The same is true even if the resignation comes with a severance agreement.

2.         An employee fails to report to work for three or more consecutive days. The company’s policy states that, in that circumstance, the employee will be considered to have voluntarily resigned. Is this an involuntary termination?

  • This specific example is not addressed in the guidance. The best advice to an employer in this circumstance is to characterize the separation as a voluntary quit. However, if the employee appeals that characterization to the Department of Labor claiming he did not intend to quit, the Department of Labor might rule that the termination was instituted by the employer for violation of the work rule and was, therefore, involuntary.

3.         The employer has a policy to terminate employees after six months absence, regardless of the reason. The employer terminates an employee after six months on medical leave. (Of course, after properly considering whether the person is “disabled” under federal and state law and whether additional leave is necessary as a reasonable accommodation).

  • Under the IRS guidance, this would be considered an involuntary termination. Involuntary termination is said to occur whenever an employer terminates an employee due to ongoing absence for illness or disability.

4.         An employer institutes a voluntary retirement incentive program. 

  • The guidance states that an involuntary termination includes a resignation in return for a severance package (a “buy-out”) where the employer indicates that after the offer period for the severance package a certain number of persons will be terminated.

5.         For economic reasons, an employer reduces an employee’s hours so that he becomes part-time and loses medical coverage. Is this an “involuntary termination” triggering the premium subsidy?

  • In a somewhat ironic result, the guidance makes clear that a reduction in hours that does not take an employee to zero hours is not an involuntary termination, even if it results in loss of coverage. Therefore, the employee in this example will have a COBRA-qualifying event, but will not be entitled to the subsidy. In another twist, if the employee quits because of having been reduced to part-time, that might be considered a sufficient “negative material change” in employment conditions that the resignation will be treated as an involuntary termination.

Here are a few other specific examples characterized in the guidance as involuntary terminations: 

  • a lay-off for economic reasons, regardless of whether a right-to-recall is stated;
  • a retirement, if the employer would have terminated the employee if he had not retired and the employee was aware of that fact;
  • a termination for cause, so long as it does not arise to the level of gross misconduct; and
  • a lock-out initiated by a company, but not a strike by employees.

One issue that was not addressed in the guidance is the obligation under ARRA that employers or plan administrators seeking reimbursement of the 65 percent premium share maintain records of involuntary terminations, referred to in the statutory language as an “attestation” of involuntary termination. Absent further guidance as to what will suffice for this record-keeping, employers and plan administrators should be certain to maintain copies of the form with the model COBRA notices called “Request for Treatment As An Assistance-Eligible Individual,” because that form requires the person electing the subsidy to indicate his/her belief that the termination was involuntary and requires the employer to indicate its position as to whether the termination was involuntary. Maintaining a log reflecting how each termination was characterized by the employer, whether an appeal was filed, and the ultimate determination is another good idea.
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Model COBRA Notices From the Department of Labor

Posted on March 30, 2009 by Mike Underwood

The U.S. Department of Labor (DOL) has released four model notices for use by employers in connection with requirements of the American Recovery and Reinvestment Act (ARRA) (see Employment Law Alert – “Broad COBRA Changes in 2009 Stimulus Bill – What Should You Be Doing Now?” – March, 2009). The model notices are available on the DOL web site: http://www.dol.gov/ebsa/COBRAmodelnotice.html. Employers and plan administrators should use the model notices as a guide, but those notices will require customization to meet the circumstances of particular employers and plans. Also, in the Model election forms there is a technical error in the way the election period is described. The Model election forms state that an election must be made within 60 days of notice. In fact, COBRA regulations allow for elections within 60 days of the date of notice or the date that coverage will end due to the qualifying event, whichever is later. Employers and plans using the Model Notices as a guide should correct that error.

The DOL and Internal Revenue Service have posted on their websites answers to common questions regarding the COBRA changes: http://www.dol.gov/ebsa/faqs/faq-cobra-premiumreductionER.html and http://www.irs.gov/newsroom/article/0,,id=204708,00.html.

 

Here is a summary of how the model notices are to be used:

 

Model General Notice (Full Version)

This is a comprehensive COBRA notice covering all the basic requirements of a COBRA notice as well as explaining the COBRA premium subsidy and other related aspects of ARRA. The notice includes election forms, general information, and a form to be used by COBRA-qualified beneficiaries to ask to be treated as an Assistance-Eligible Individual (AEI) and to receive the COBRA premium subsidy.

 

The Model General Notice (full version) is to be used for all COBRA-qualifying events – not just involuntary terminations – occurring from now until December 31, 2009. This same notice is to be issued to all persons who had a qualifying event on or after September 1, 2008 but have not yet received an election notice or received an election notice that did not include information about ARRA. While there is conflicting information, the safest course of action is to treat April 18, 2009 as the deadline to distribute the Full General Notice.

 

Model General Notice (Abbreviated Version)

The Model General Notice (abbreviated version) is to be given to persons who had COBRA-qualifying events on or after September 1, 2008 and are currently enrolled in COBRA. This notice includes an abbreviated general description of COBRA rights, apparently with the idea that persons who are already enrolled in COBRA do not need as full an explanation as those who have not enrolled. The Model General Notice (abbreviated version) includes a summary of the COBRA subsidy provisions under ARRA and a form for request by the qualified beneficiary to be treated as an AEI and to receive the subsidy. Again, the safest course of action is to treat April 18, 2009 as the deadline to distribute the Abbreviated General Notice.

 

Model Notice in Connection With Extended Election Periods

This notice is to be issued by April 18, 2009 to persons with qualifying events that occurred on or after September 1, 2008 through February 16, 2009 (the effective date of ARRA) who did not elect COBRA or elected COBRA but suffered a discontinuation of coverage because, for example, they failed to pay premiums. This notice gives those persons a new opportunity to elect COBRA and receive the premium subsidy. If elected, the COBRA coverage will take effect retroactive to February 17 for those with a qualifying event date before then. However, for persons with a qualifying event date before February 17, 2009, the 18-month total period of COBRA eligibility dates back to the original qualifying event date.

 

Model Alternative Notice

The Model Alternative Notice is for use by employers and plans not covered by federal COBRA but covered by state “mini-COBRA” laws. Because the rights and requirements under various state mini-COBRA laws differ, the Model Alternative Notice requires substantial revision consistent with the specific state law. The notice includes an election form and an application for treatment as an AEI.

 

Ohio has a mini-COBRA statute that applies to most employers that are not covered by federal COBRA. The Ohio Department of Insurance has published guidelines specific to Ohio’s mini-COBRA on its web site at:

http://www.ohioinsurance.gov/ConsumServ/COBRAStimulusSmallEmployers.pdf.

 

The Ohio Department of Insurance has adapted the DOL model notices for use under Ohio’s insurance continuation statute: http://ohioinsurance.gov/ConsumServ/COBRAContinuationCoverageElectionNotice.pdf. For employers in Ohio, the Model Alternative Notice is to be sent to persons who are eligible for Ohio insurance continuation coverage and were terminated after February 17, 2009. The notice is also to be sent to former employees terminated on or after September 1, 2008 who either elected and are still receiving continuation coverage or who are still eligible to elect continuation coverage. Ohio law does not require offering an extended election opportunity to persons who were given a COBRA notice before February 17, 2009 and failed to elect coverage during the election period. Insurance continuation under Ohio law is for a maximum of six months currently. However, there is legislation pending in Ohio that would change the maximum continuation period to 12 months in order to coincide with the available premium subsidy under ARRA.
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