James H. Gilliam BrownWinick 666 Grand Avenue, Suite 2000 Des Moines, IA Telephone: Facsimile: COBRA UPDATES FOR EMPLOYERS – 2009

Where does the acronym “COBRA” come from?

Consolidated Omnibus Budget Reconciliation Act of 1986.

What was COBRA designed to do?

COBRA deals with a variety of subjects; it is best known for Title X which provides incentives to employers to provide continuing group health plan coverage to employees upon a qualifying event.

What employers are covered by COBRA?

Generally, employers with 20 or more full-time equivalent employees are covered.

How does COBRA incentivize employers to provide a group health care plan that allows employees to maintain coverage upon a qualifying event?

As originally enacted: no tax deduction for health care plan costs Subsequent amendments: excise tax imposed

What are the “qualifying events”?

1.Death of employee 2.Loss of employment (except gross misconduct) 3.Divorce/Legal Separation 4.Dependent child reaches age at which no longer covered 5.Entitlement to Medicare

What is required when a qualifying event occurs?

Plan administrator is notified by the employer within 30 days of death, termination or entitlement to Medicare

Plan administrator is notified by plan beneficiary within 60 days of divorce or child ceasing to be covered.

What happens after the plan administrator receives notice of a qualifying event?

The plan participant and beneficiaries must be sent a notice of their right to elect continuing coverage under the health plan.

How long does the participate/beneficiary have to exercise the election?

60 days

If coverage is elected, how long does the participant/beneficiary have to pay the initial premium?

45 days

If continuing coverage is elected, how long can coverage continue?

18 months in most cases 29 months in the case of social security disability 36 months in divorce

What is the premium cost to the participant/beneficiary?

The full cost of the employer premium plus up to 2% administrative charge (50% in final 11 months of social security disability)

May the participant/beneficiary opt for a lesser coverage?

Yes, if those options are available to covered employees

Can continuing coverage be cancelled for non- payment of premium?

Yes, upon 15 days written notice prior to ceasing coverage.

What changes are new to COBRA for 2009?

American Recovery and Reinvestment Act of 2009 (ARRA)

What did ARRA do?

Congress determined that many participants who suffered job loss were unable to afford full premium. ARRA created a 65% subsidy of COBRA premiums for the first 9 months after involuntary termination.

How does the subsidy work?

The employer initially pays the 65% subsidy and then files for a reimbursement/credit on its taxes

Which employees are eligible for the subsidy?

Eligibility: Involuntary termination between September 1, 2008 and December 31, 2009; and

Eligibility (continued) Ineligible for any other group-sponsored health insurance option

President Obama did not sign the bill until 2/17/09, yet employees terminated since 9/1/08 are eligible for the subsidy. How do we go back to include them?

ARRA requires notice to those employees involuntarily terminated since 9/1/08 and allows them a “second chance” to elect coverage.

What other changes to the COBRA election notice are required by ARRA?

Notices must include: 1.All forms necessary to establish eligibility for premium reduction

Notices must include: (continued) 2.Name, address, telephone of plan administrator

Notices must include: (continued) 3.Description of the extended election period.

Notices must include: (continued) 4.Description of the beneficiary’s obligation to notify the plan of subsequent eligibility for coverage under another plan/Medicare and the penalty for failure to do so.

Notices must include: (continued) 5.Description of the right to a reduced premium and conditions of entitlement.

Notices must include: (continued) 6.Description of the option to enroll in different coverage if permitted by an employer

Are there any recommended forms available to employers?

The DOL has posted four model notices on its COBRA website: General Notice (full version) General Notice (abbreviated version) Alternative Notice (state law) Notice for use with Extended Election Periods

Did ARRA change any deadlines for electing coverage or payment of premium?

No. 60 days to elect; 45 days to pay premium.

What notices go to an employee that was not involuntarily terminated?

Notice of the subsidy provisions must be given to all COBRA qualified beneficiaries, whether or not involuntarily terminated.

What occurs when an employee applies for the subsidy but is not qualified?

Employer may deny. Appeals are heard by DOL.

Is there any required documentation for the employer to claim the credit on payroll taxes?

No, but the careful employer should retain documents proving eligibility, notice, receipt of premiums from the employee and payment of premiums by the employer.

What are an employer’s potential penalties for failure to comply?

$110/day (ERISA) $100/day excise tax (IRS)

What is the tax treatment of the subsidy to the beneficiary?

The subsidy is not included in taxable income, but the subsidy is phased out for taxpayers earning over $125,000 ($250,000 joint) and enforced through a recapture tax

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