March 11, 2009 New COBRA Premium Subsidy Requirements Joel T. Kopperud Anne E. Moran Rhonda M. Bolton

2 Overview American Recovery and Reinvestment Act (“ARRA”)  Federal government will subsidize COBRA premiums -- up to 65% of employee cost for up to 9 months * Employer must charge 35% of COBRA premium * Government pays subsidy through payroll tax credit  Gives eligible individuals a second chance to elect COBRA

3 Who is Eligible for COBRA subsidy?  Qualified beneficiaries who became eligible for COBRA between September 1, 2008 and December 31, 2009 due to involuntary termination of employment; and  Elect COBRA = “Assistance Eligible Individual” (AEI) *AEIs include those eligible for mini-COBRA

4 Who?  No definition of “involuntary termination”  income limits --  Phases out: >$125K (single)/$250K (joint)  Ineligible: >$145K (single)/$290K (joint) * High income individuals can permanently waive subsidy to avoid requirement to re-pay with income taxes

5 Who?  “Second chance” COBRA election: for those already laid off who didn’t elect before, or who elected and discontinued  Second chance election period: 60 days after new notice is sent about election/subsidy * deadline = April 18, 2009 * does not apply to mini-COBRA but states may adopt consistent approach

6 Who?  Ineligible for subsidy  People who clearly left voluntarily  Terminated for gross misconduct  Individuals collecting Health Coverage Tax Credit  Beneficiaries (e.g., spouses) added to COBRA due to qualifying events after employee was laid off

7 What Is The Subsidy?  Individual pays 35% of COBRA premium  Employer (or plan) pays 65% of COBRA premium and is reimbursed through payroll tax credit

8 What? CAUTION: Employer can end up paying more money and getting a smaller reimbursement if employer is already paying part of COBRA voluntarily * Subsidy is calculated based on premium amount actually paid by former employee Example: $1,000 premium paid by former employee “A”. “A” must pay $350 under the law; employer/government pays subsidy of $650. However: $1,000 premium but employer has always paid half. Under new law, “A” pays $175 (35% of $500), employer pays $825 and government only reimburses $325. Example: $1,000 premium paid by former employee “A”. “A” must pay $350 under the law; employer/government pays subsidy of $650. However: $1,000 premium but employer has always paid half. Under new law, “A” pays $175 (35% of $500), employer pays $825 and government only reimburses $325.

9 What Coverage is Eligible?  All plans subject to COBRA (e.g., medical, vision, dental)  Includes state continuation of coverage plans * Employer can allow option to change to core coverage of same or lesser cost if same option given to active employees

10 When Does Subsidy Begin? Starts March 1, 2009 (plans that charge premiums monthly) 2 month ramp up – can charge employee full amount March & April but must refund the 65%

11 When Does Subsidy End?  Max subsidy period = 9 months  Ends earlier of:  9 months after start  individual’s COBRA coverage ends  eligibility for core health coverage under another plan, Medicare, etc., * individual must notify you of their eligibility for other coverage

12 How does this all work?  Paying the subsidy – the entity to whom premiums are payable pays the subsidy and gets reimbursed  Getting the reimbursement – through a refundable credit on payroll taxes – Form 941

13 HOW? Reimbursement:  IRS has new Form 941 to facilitate crediting  Revised Form 941 can be found at pdf/f941.pdf, and the Form 941 instructions can be found at pdf/f941.pdf

14 HOW? CAUTION: Payroll tax credit is not earned until payment is received from employee * Don’t claim the credit prematurely!

15 To Do List: Need to develop a system for tracking receipt of COBRA premium payments Establish/update billing system to charge individuals only 35% of COBRA premium Establish system to track/recoup reimbursement of subsidy Establish record of SSNs on all covered employees, amount of subsidy reimbursed for each, and whether subsidy was for one individual or 2 or more individuals Need to develop a system for tracking receipt of COBRA premium payments Establish/update billing system to charge individuals only 35% of COBRA premium Establish system to track/recoup reimbursement of subsidy Establish record of SSNs on all covered employees, amount of subsidy reimbursed for each, and whether subsidy was for one individual or 2 or more individuals

16 HOW?  Notices: DOL will publish models by March 19, 2009 = safe harbor  Recipients (think in terms of 4 categories): 1) already laid off/got a notice – need a “second chance” election notice 2) laid off in future (post March 19, 2009) – need a revamped COBRA notice 3) need a notice between now & March 19, 2009 – need to send notice mentioning subsidy; be aware may need to send another after model notice comes out 4) state COBRA

17 HOW? CAUTION: “second chance” election notice needs to go to all former employees who had qualifying event during September 1, 2008 to December 31, 2009 period, even if they wouldn’t be eligible for subsidy * deadline = April 18, 2009

18 To Do List: Need to develop a system for tracking receipt of COBRA premium payments Establish/update billing system to charge individuals only 35% of COBRA premium Establish system to track/recoup reimbursement of subsidiary Establish record of SSNs on all covered employees, amount of subsidy reimbursed for each, and whether subsidy was for one individual or 2 or more individuals Develop list of all employees with qualifying event since September 1, 2008 Determine which of these individuals were involuntarily terminated (other than for gross misconduct) Determine which currently have COBRA coverage Determine which uncovered individuals are entitled to second chance election Need to develop a system for tracking receipt of COBRA premium payments Establish/update billing system to charge individuals only 35% of COBRA premium Establish system to track/recoup reimbursement of subsidiary Establish record of SSNs on all covered employees, amount of subsidy reimbursed for each, and whether subsidy was for one individual or 2 or more individuals Develop list of all employees with qualifying event since September 1, 2008 Determine which of these individuals were involuntarily terminated (other than for gross misconduct) Determine which currently have COBRA coverage Determine which uncovered individuals are entitled to second chance election

19 HOW?  Recordkeeping Requirements: most relate to what’s needed by IRS; nothing needs to be filed with Form 941 * Keep records used for AEI determinations; employees have right to expedited appeal of subsidy denied to US Department of Labor  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. (From the IRS website)  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. (From the IRS website)

20 To Do List: Need to develop a system for tracking receipt of COBRA premium payments Establish/update billing system to charge individuals only 35% of COBRA premium Establish system to track/recoup reimbursement of subsidiary Establish record of SSNs on all covered employees, amount of subsidy reimbursed for each, and whether subsidy was for one individual or 2 or more individuals Develop list of all employees with qualifying event since September 1, 2008 Determine which of these individuals were involuntarily terminated (other than for gross misconduct) Determine which currently have COBRA coverage Determine which uncovered individuals are entitled to be second chance election Establish system to organize & maintain documentation to establish subsidy eligibility, including attestations of involuntary termination Establish system of records to document subsidy amounts, payment of premium by employer (if applicable), premium cost, proof of coverage Need to develop a system for tracking receipt of COBRA premium payments Establish/update billing system to charge individuals only 35% of COBRA premium Establish system to track/recoup reimbursement of subsidiary Establish record of SSNs on all covered employees, amount of subsidy reimbursed for each, and whether subsidy was for one individual or 2 or more individuals Develop list of all employees with qualifying event since September 1, 2008 Determine which of these individuals were involuntarily terminated (other than for gross misconduct) Determine which currently have COBRA coverage Determine which uncovered individuals are entitled to be second chance election Establish system to organize & maintain documentation to establish subsidy eligibility, including attestations of involuntary termination Establish system of records to document subsidy amounts, payment of premium by employer (if applicable), premium cost, proof of coverage

21 Resources: U.S. Dept. of Labor lists a help number on its website: Check for updates - subscribe to get alert when model notices are released, and other guidancewww.DOL.gov/COBRA Check and go to the ARRA page for links to FAQS, other guidancewww.irs.gov Contact CIAB – check for more information or contact Joel Kopperud with

22 Please Note: These slides are intended to provide only a general overview of selected issues related to the new COBRA subsidy. They do not provide a complete analysis. The information in the outline is for general use only and is not intended to provide specific advice or recommendations, legal or otherwise, for any individual or organization. The information provided herein is not intended to be and should not be construed as a legal opinion or advice. You need to consult with your own attorney or other adviser relating to your specific circumstances or those of any organization that you advise. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein. If you have any questions about these slides, feel free to contact Joel Kopperud with the CIAB at (202)

March 11, 2009 New COBRA Premium Subsidy Requirements Joel T. Kopperud Anne E. Moran Rhonda M. Bolton