Cobra and State Continuation Premium Subsidy THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (ARRA) -STIMULUS 1 Presented By: Terrence P. Frett, CEBS, CLU, CPCU, REBC, RHU Frett/Barrington Limited

C OBRA DEFINED  20 or more employees  More than 50% of previous calendar year  Part-Time count as a fraction of full time  Includes Group Health, Dental, Vision, HRA and FSA  Normal duration 18 months  Charge 102% of premium 2

S TATE OF W ISCONSIN CONTINUATION DEFINED  All fully insured employer groups (2+ employees)  State Resident  18 months duration  Charge 100% of premium  Medical coverage only 3

N EW PREMIUM SUBSIDY  Effective date: Health coverage beginning on or after February 17, Generally March 1, 2009  Subsidy Amount – Assistance Eligible Individual (AEI)  AEI pays 35% of premium  Government subsidizes 65% of premium  Subsidy Duration: Whichever occurs first  9 months or eligibility for other group coverage (or Medicare) 4

N EW PREMIUM SUBSIDY CONTINUED  Income Limitations:  Individual Filers: $125,000 - $145,000 income tax increase by percentage of the COBRA subsidy $145,000 + income tax increase by total amount of subsidy  Joint Filers: $250,000 - $290,000 income tax increase by percentage of the COBRA subsidy $290,000 + income tax increase by total amount of subsidy 5

A SSISTANCE E LIGIBLE INDIVIDUALS  Eligible for COBRA as a result of the employee’s involuntary termination between September 1, 2008 – December 31, 2009  Eligible for COBRA continuation (state also) at any time between September 1, 2008 – December 31, 2009  Elects Cobra coverage  Involuntary Termination of Employment  Other than gross misconduct  Bill does not define “involuntary”  Does this apply to employees that agree to retire early?  Full-time to part-time (reduction in hours) does not qualify  Dependent child loses eligibility - (ex. graduated from college) does not qualify 6

A SSISTANCE ELIGIBLE INDIVIDUAL John was Involuntary Terminated and offered COBRA November 1, 2008  Declined COBRA when offered for him and his family  Now has a second enrollment opportunity  Eligible for subsidy March 1, 2009  Elects Cobra under second enrollment March 1, 2009  Only has 14 months of COBRA available  Full Cobra Rate $1,000  John pays $350  Employer offsets payroll taxes $650 Example #1 Declined Cobra 7

A SSISTANCE ELIGIBLE INDIVIDUAL John was Involuntary Terminated and offered COBRA November 1, 2008  John elected Cobra for his family and began paying the $1000 month COBRA premium  John qualifies for the premium subsidy effective March 1, 2009  Employer still bills John $1,000 premium for March and April 2009  Employer notifies John of the subsidy and applies $1,300 credit against future Cobra premiums or refunds the credit  Once the subsidy is communicated John only pays $350 (35%) going forward. Employer takes payroll tax credit  John does not qualify for any refund during November 1, 2008 thru February 28, 2009 Example #2 Elected Cobra 8

A SSISTANCE ELIGIBLE INDIVIDUAL John was Involuntary Terminated and offered COBRA November 1, 2008  John elected Cobra for his family and began paying the $1,000 monthly COBRA premium  January 1, 2009 John stopped paying because he could not afford the $1,000  John has a second enrollment opportunity for coverage March 1 st.  Eligible for subsidy March 1st Example #3 Dropped Cobra 9

COBRA VS STATE CONTINUATION COBRA or Self InsuredSTATE CONTINUATION Includes 2 nd enrollment opportunity Will decide if they will require second enrollment (OCI still looking into this since DOL just made this optional in a March 2 nd release) Employers will have to recoup the subsidy through offset on payroll taxes Appears the insurance carrier will have to recoup the subsidy through payroll taxes Medical, Dental, Vision, and HRA Medical only coverage Same subsidy amount of 35% 10

P REMIUM SUBSIDY  Cobra subsidy amount claimed on Employer’s Quarterly Federal Tax withholding Form 941  Employer is not obligated to follow Cobra/State Continuation. Only the insurance carrier will recover subsidy 11

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W HAT IF EMPLOYER PAYS A PORTION OF COBRA BASED UPON SEVERANCE PACKAGE ?  Example: Bob (involuntarily) terminated on January 1, 2009 and was offered COBRA on February 1, 2009  Former employer offers to pay 50% of COBRA for 3 months for Bob  Monthly COBRA cost is $1,000 for Bob’s family coverage 13

W HAT IF EMPLOYER PAYS A PORTION OF COBRA BASED UPON SEVERANCE PACKAGE ? CONTINUED 14 FebruaryBob pays $500 / Company covers $500 MarchBob pays $175 (35% of $500) / Company pays $500 / Company recovers $325 subsidy AprilSame as March MayBob pays $350 (35% of $1,000) / Company recovers $650 subsidy

E MPLOYER OBLIGATIONS  Identify eligible terminated employees (September 1, 2008 – current)  Prepare and send out notices  Currently on COBRA - new subsidy  Not on COBRA – The second enrollment opportunity and subsidy  Notices must include:  The forms necessary for establishing eligibility for subsidy  The name, address, and phone number of the plan administrator and any other person maintaining relevant information in connection with the subsidy  A description of the extended election period (the second 60-day election period)  A description of the qualified beneficiary’s obligation to notify the plan if he or she becomes eligible for coverage under another group health plan or Medicare and the penalty for failure to notify the plan 15

E MPLOYER OBLIGATIONS CONTINUED  A description, displayed in a “prominent manner,” of the qualified beneficiary’s right to reduced premium and any conditions on entitlement to the reduced premium  A description of the election of different coverage option described above (if the employer chooses to offer this option of AEIs  Notices must be sent 60 days from enactment (February 16 th, 2009)  DOL model notice: within 30 days from enactment (February 16 th, 2009) 16

E MPLOYER ’ S MUST MAINTAIN FOLLOWING RECORDS FOR SUBSIDY  Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35% 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 (which must be during the period from September 1, 2008, to December 31, 2009), 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 SSN’s of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for 1 individual or 2 or more individuals.  Other documents necessary to verify the correct amount of reimbursement. 17

MISCELLANEOUS  Gap from 1 st COBRA offering and second COBRA offering will not count toward 63 day gap for HIPAA  COBRA beneficiaries who pay full premiums for March and April (prior to notice) must be given  Refund  Credit toward future premiums 18

S TATE OF WISCONSIN LEGISLATIVE UPDATE  Badger Choice – Not part of the budget – may be introduced as a bill  Healthy Wisconsin – May be introduced as a bill  New Bills on Fast Track  2 New Mandates Cochlear ear implant for kids under 18 Autism mandated 19

F EDERAL LEGISLATIVE UPDATE  $634 billion allocated in President Obama’s budget for healthcare reform. The goal is to have Congress create the plan  A summit was held on March 5 th. His objective is to set up a systemic health reform plan by the end of 2009  Forums to be held at:  California, Iowa, Michigan, North Carolina and Vermont 20