On March 19, 2009, The U.S. Department of Labor (DOL) issued model COBRA notices in accordance with the COBRA premium subsidy requirements of the American Recovery and Reinvestment Act of 2009 (the “Stimulus Act”). The DOL also added updated COBRA subsidy “FAQs” to its “Employee Benefits Security Administration” website.
COBRA Subsidy Rules
As discussed in our March newsletter, the Stimulus Act (enacted February 17, 2009) included a temporary governmental COBRA premium subsidy. Any employee or beneficiary who became/becomes eligible for COBRA continuation health coverage rights due to an involuntarily termination of employment between September 1, 2008 and December 31, 2009 is entitled to a nine (9)-month government subsidy of 65% of the COBRA premiums, beginning for the period after the enactment of the Act (which generally would be the period beginning March 1, 2009), or such later date in 2009 if the involuntary termination occurs later in 2009.
The Stimulus Act provides a special enrollment opportunity for those individuals who (1) were eligible to elect COBRA between September 1, 2008 and February 16, 2009 due to an involuntary termination but declined, or (2) elected COBRA between September 1, 2008 and February 16, 2009 due to an involuntary termination but dropped coverage before February 17, 2009, unless covered under another group health plan. The individual then has 60 days to elect COBRA coverage from the notice of their special enrollment rights. In the event such individual elects coverage, the coverage is prospective from February 17, 2009, and does not go back before the effective date of the Stimulus Act. (In most cases, the subsidy will run from March 1, 2009.) The maximum 18-month COBRA coverage period, on the other hand, begins to run on the date of the qualifying event/loss of coverage and does not get extended.
For more details on the COBRA subsidy rules contained in the Stimulus Act, see the March edition of our newsletter entitled “Real Workplace Issues.”
Model COBRA Subsidy Notices
The DOL was instructed to issue model notices within 30 days of enactment of the Stimulus Act. On March 19, 2009 (the 30th day after enactment of the Stimulus Act), the Department of Labor (“DOL”) issued the following four (4) model notices, which can be found at http://www.dol.gov/ebsa/COBRAmodelnotice.html. These notices must be distributed no later than 60 days after enactment of the Act, which is April 18, 2009.
- Full General Notice. The first model is a general COBRA notice, which contains general COBRA provisions as well as the Stimulus Act’s COBRA subsidy provisions, and should be sent to all former employees and beneficiaries who experienced or will experience any COBRA qualifying event (not just involuntary termination) between September 1, 2008 to December 31, 2009. This notice is substantially different than the previous general model COBRA notices last issued in 2004 as Appendices to DOL Reg. § 2590.606. (If one of the alternative model notices is used, this general notice need not be utilized.)
- Abbreviated General Notice. The second model is an abbreviated general COBRA notice, which includes information regarding the COBRA premium subsidy, but does not include general COBRA election notice provisions. This abbreviated version may be sent instead of the full COBRA notice to those individuals who already elected COBRA prior to the effective date of the Stimulus Act (for a qualifying event on or after September 1, 2008), are still receiving COBRA, and only require additional information regarding the COBRA subsidy rules.
- Alternative Notice. The third model notice is for individuals who are eligible under a state’s mini-COBRA rules.
- Extended Election Notice. The fourth model notice is for those who had a qualifying event prior to enactment of the Stimulus Act but on or after September 1, 2008, and either did not elect COBRA continuation coverage, or elected it but subsequently discontinued coverage (i.e., the individual failed to pay his/her premiums).Revised FAQs Regarding the COBRA Subsidy Rules On March 19, 2009, the DOL also posted updated COBRA premium reduction FAQs (one for employers and one for employees), which are more expansive than the earlier FAQs posted on the DOL’s website. These FAQs can be found at http://www.dol.gov/ebsa/COBRA.html. The newly-added FAQs provide some clarification on the COBRA subsidy requirements. For example:
- Application. The premium subsidy applies to private group health plans, to governmental plans, and to group health insurance required by a state that imposes a mini-COBRA rules (e.g., in NY for employers with less than 20 employees). (Q2 of the Employer FAQs)
- Disqualification from Health Coverage Tax Credit. Electing COBRA with premium subsidies disqualifies an individual from the health coverage tax credit under Internal Revenue Code § 35. (Q3 of the Employer FAQs)
- Involuntary Termination. “Involuntary termination” includes layoffs, but does not include terminations for gross misconduct. (Q3 of the Employer FAQs and Q16 of the Employee FAQs)
- 35% of 102% Where Charged for Administrative Fees. The 35% participant portion is 35% of what would otherwise be charged by the company, which may include the 2% administrative fee allowed under the COBRA rules. (Q11 of the Employee FAQs)
- General Notices. The new general notices are required for all eligible individuals, whether currently on COBRA or not, who had/have COBRA qualifying events between Sept. 1, 2008 and Dec. 31, 2009 (see full general notices models discussed above, and abbreviated general notices where the individual is already on COBRA). (Q13 of the Employee FAQs and Q5 of the Employer FAQs)
- Contents of Notices. The notices must include: (i) forms needed to establish eligibility; (ii) plan administrator contact information; (iii) description of second election period (if applicable); (iv) requirement that eligible individuals must notify the plan when becoming eligible for other group health coverage or Medicare and the penalty for not complying; (v) description of the right to premium reduction and conditions for entitlement; and (vi) if offered, a description of different coverage option that does not cost more than current coverage. (Q14 of the Employee FAQs and Q6 of the Employer FAQs)
- Second Election. The second election applies to those individuals who are involuntarily terminated between September 1, 2008 and February 16, 2009, who are not currently on COBRA. If they elect coverage within 60 days after the COBRA notice is given, the COBRA subsidy will run retroactive to the first period of coverage beginning on or after February 17, 2009 (which would be March 1, 2009 in the case of COBRA coverage paid for on a calendar month basis), while the maximum COBRA coverage period still runs from the COBRA-qualifying event/loss of coverage. (Q6 of the Employee FAQs and Q4 of the Employer FAQs)
- If Employer Group No Longer Has Group Health Plans, COBRA Subsidy Would Not Apply. There is no right to the COBRA subsidy, or to COBRA itself, if the employer and its affiliates no longer maintain any health plan. (Q17 of the Employee FAQs)Halpern Employment Law Advisors again wishes to thank Charles C. Shulman, Esq., LLC, who assisted in the preparation of this update. Charles practices employee benefits and executive compensation in New York and New Jersey, and can be reached at cshulman@ebeclaw.com.