1. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® The “Stimulus Bill” Expands COBRA Benefits Presented by: Christopher H. Mills Phone: 908.516.1050 cmills@laborlawyers.com Atlanta · Charlotte · Chicago · Columbia · Dallas · Denver · Fort Lauderdale · Houston · Irvine · Kansas City · Las Vegas Louisville · New Jersey · New Orleans · Orlando · Philadelphia · Portland ME · Portland OR · San Diego · San Francisco · Tampa www.laborlawyers.com

2. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Introduction American Recovery and Reinvestment Act of 2009 (a/k/a the “Stimulus Bill”) Enacted on February 17, 2009 Primary changes to COBRA –COBRA premium subsidy –“Second Chance” COBRA election Not a permanent revision to COBRA – ARRA amendments apply only through 12/31/09

3. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Which Plans Are Covered? All plans to which COBRA applies Not healthcare FSAs Includes: –Dental –Vision –EAPs that provide healthcare Includes plans that aren’t subject to federal COBRA but are subject to state mini-COBRA laws

4. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 The COBRA Subsidy Eligible individuals pay 35% of COBRA premium Employer or health plan pays the other 65% –For multi-employer plans, the plan claims the credit –For plans that aren’t subject to federal COBRA but to state mini- COBRA laws, the insurance company must pay and claim the credit Paying entity “fronts” the ex-employee the 65% and recoups the money when paying quarterly payroll taxes –Takes a credit against the federal payroll taxes due on behalf of current employees for the amount of premiums it’s paid –Credit applies against periodic wage withholdings or FICA payroll taxes

5. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 COBRA Subsidy – More Details No retroactivity before enactment date of ARRA (2/17/09) –Subsidy only applies to periods of COBRA coverage that begin on or after 2/17/09 or continue after 2/17/09 Duration of the subsidy = 9 months –After 9 months of subsidies, individual must pay full COBRA cost (102%) Employer can’t claim 65% tax credit unless employee has already actually paid full 35% share

6. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 A Law With Unintended Consequences Subsidy impacts generous employers who’ve agreed to pay part or all of employee’s COBRA costs Employer already promised to fully subsidize COBRA –No reimbursement through payroll tax subsidy Employer already partially subsidizes COBRA –Employee’s contribution reduced to 35% of pre-ARRA obligation –Employer’s reimbursement limited to 65% of difference between what it’s been paying and employee’s new contribution EXAMPLE: COBRA cost = $1,000; employer had agreed to pick up $600 of the cost; employee’s $400 share will be reduced to $140 (35% of $400); employer required to pay $860 ($1,000-$140) but gets a payroll tax credit of only $260 (65% of $400)

7. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 COBRA Subsidy – Yet More Details What if the credit to be taken exceeds the payroll tax liability? –IRS reimburses employer directly –Employer can take it as a credit toward future payroll taxes, as if it were an overpayment of payroll taxes ARRA didn’t extend any duration provisions of COBRA – still 18 months

8. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Who’s Eligible For The Subsidy? Involuntarily terminated employees Spouse and children of involuntarily terminated employees Date of termination between 9/1/08 & 12/31/09 Termination was not for gross misconduct Employees participating in voluntary buyouts or voluntary severance programs probably aren’t eligible –“Involuntary termination” isn’t defined –What about negotiated resignations, voluntary departures to avoid layoff, early retirement incentive programs? –Watch for further guidance on this from Treasury or Labor

9. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 When Does the Subsidy NOT Apply? Individual is or becomes eligible for Medicare or Medicaid Individual is or becomes eligible for coverage under another group health plan –Coverage under spouse’s plan NOTE: It’s “becomes eligible for” NOT “becomes covered by” Individuals who become eligible for or obtain alternate coverage are obligated to notify their employer of status –Failure to notify results in penalty of 110% of subsidy they receive after becoming ineligible At end of 9-month subsidy period (COBRA coverage may continue)

10. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Denial Of Subsidy Can Be Appealed ARRA requires Secretary of Labor to provide “expedited review” of denials of a premium subsidy Determinations to be made within 15 days of appeal Issue of “involuntariness” could be raised in this procedure

11. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 What About The Highly-Compensated? You’re “highly compensated” if your Adjusted Gross Income exceeds $125K Highly-compensated employees (HCEs) aren’t disqualified from receiving the subsidy – they just have to pay some or all of it back Employers don’t have to test for eligibility or “police” the program –Every otherwise eligible employee pays only 35% of the premium cost, and employers pay 65% of premium cost for all otherwise eligible employees Subsidies will be recouped from HCEs through their income tax filings Qualifying individuals whose AGI between $125K and $145K (between $250K and $290K for joint filers) –Subsidy partially recouped Qualifying individuals whose AGI exceeds $145K ($290K for joint returns) –Entire subsidy will be recouped HCEs can waive the subsidy up front (Treasury to provide details)

12. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Employer Reporting Requirements When seeking the tax subsidy, employers will need to submit supporting information –Receipt date and amount of qualified individual’s 35% premium payment –“Attestation” that each qualified employee for whom reimbursement is requested was involuntarily terminated –Each covered individual’s taxpayer identification number/SSN –Amount of the subsidy attributable to each individual –Designation of whether the subsidy was for one or two or more individuals –Accounting of payroll tax credits taken this payroll period and an estimate of credits to be taken next period

13. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 What About Those Currently On COBRA? Individuals who qualified for COBRA coverage as result of an involuntary termination between 9/1/08 and 2/17/09 No entitlement to lower premiums for any period prior to 2/17/09 –No refund of already-paid premiums Start paying reduced premium for first period after 2/17/09 – likely 3/1/09 Entitled to 9 months of subsidized premiums (if they’ve used less than 9 months of COBRA entitlement) If full payment has already been submitted for any period after 2/17/09, employer must refund or credit toward future premiums –Credit must be likely to be used w/in 6 months; if not, then refund

14. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Those Not On COBRA: “Second Chance” Election Period Individuals who experienced a qualifying event as result of an involuntary termination between 9/1/08 and 2/17/09 –Didn’t elect COBRA at time of the qualifying event –Initially elected COBRA, but let it lapse prior to 2/17/09 Get a new 60-day election period Must be sent notice of right to second-chance election 60-day election period doesn’t start till notice received Notice must be sent no later than 4/18/09 (60 days after enactment of ARRA) –Sec. Labor to issue model notice by 3/19/09 (next Thursday) –Employers not relieved of notice obligation if no model notice issued

15. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 The “Second Chance” Election If selected, coverage retroactive to date of ARRA enactment (2/17/09) – NOT to date of original qualifying event BUT 18-month overall COBRA eligibility period still counted from date of initial qualifying event Period coverage wasn’t in effect between 9/1/08 and new election date won’t count for 63-day- break-in-coverage rule on pre-existing conditions

16. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Notice Requirements Employers must send COBRA notices to all individuals who become eligible for COBRA between 9/1/08 and 12/31/09 that describe ARRA changes May incorporate information into regular COBRA materials or send with unchanged regular materials as a separate notice Employers have an incentive to send the notice out ASAP, since the second-chance election period of 60 days doesn’t start to run until the qualified individuals receive the notice –Send notices Certified/RRR and regular mail

17. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Minimum Content of the Notice Description of COBRA premium assistance benefits and eligibility rules [must be “displayed in a prominent manner”] Include forms necessary for establishing the eligibility of the individual or family members for premium assistance benefits Description of eligible individuals’ ability to elect COBRA coverage despite having initially declined, or having let COBRA lapse Description of eligible individuals’ obligation to notify the plan that they have become eligible for coverage under another group health plan, Medicare or Medicaid, and the penalties for failure to notify the plan Description of individual’s option to change coverage and enroll in a lower- cost group health plan option, provided the employer decides to permit such a change (90 days to decide) Plan administrator’s contact information, so as to answer any questions

18. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Terminated Employees May Now Change Plan Coverage Under COBRA Couldn’t change type of coverage before ARRA Could ONLY keep same level of coverage ARRA establishes 2 types of continuation coverage –Regular Health Plan coverage – continue same type of coverage in effect before qualifying event –Alternative Health Plan coverage – employers may (but are not required to) offer alternative coverage

19. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 “Alternative” COBRA Coverage Employer must determine to offer alternative coverage Same option must also be available to active employees Premiums must be equal to or lower than cost of coverage maintained prior to termination Individuals can’t opt into: –Flexible Spending Accounts –Coverage providing ONLY dental, vision, counseling, on-site medical facility or other referral services If offered, individual has 90 days after receiving notice of option to select lower-cost option Qualified individuals will continue to be able to change coverage during open enrollment periods, like active employees

20. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Action Items For Employers Or Plans Prepare updated COBRA Notices and Summary Plan Descriptions –Determine whether to modify existing materials or use them with a separate, stand-alone notice of ARRA changes Distribute Notices by 4/18/09 Implement method of sending notices that yields confirmation of receipt Monitor postal returns of notices and use reasonable efforts to locate current address information Identify “assistance-eligible individuals” – evaluate employee terminations since 9/1/08 –Was the termination “involuntary”? –Was the employee eligible for COBRA continuation? Develop list of ex-employees eligible for second-chance election –Did the ex-employee elect COBRA continuation? –Which ex-employees initially elected COBRA coverage but let coverage lapse before 2/17/09

21. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 More Action Items For Employers Or Plans Identify any covered individuals who have already paid a 100% premium for March or later –Determine whether to refund portion of premium or apply it toward future premiums and notify individual of decision Re-evaluate & possibly re-draft severance plans that provide for 100% employer-paid COBRA continuation –Payroll tax credit only applies to COBRA premiums paid by employers on account of the ARRA –Employers that voluntarily agree to pay some portion – or all – of COBRA premiums aren’t eligible for a tax refund Evaluate benefit continuation policies that may be more generous than COBRA –Offering continuation coverage to those not eligible for it under COBRA – Domestic partners –If employer extends subsidy to these groups, it won’t get reimbursed and would have to include amount of “private subsidy” as taxable income to individual

22. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Possible Additional COBRA Changes House bill contained provision to bridge the “Medicare gap” for involuntarily terminated employees Applied to individuals 55 or older with 10 or more years of service –Voluntary or involuntary terminations –Reduction in hours resulting in qualifying event Would have permitted them to remain on COBRA until Medicare-eligible or covered by another employer- sponsored group health plan Likely to resurface during debate over health care reform

23. Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® www.laborlawyers.com ● Phone 908.516.1050 Fisher & Phillips LLP ATTORNEYS AT LAW Solutions at Work ® Final Questions? Presented by: Christopher H. Mills Phone: 908.516.1050 Email: cmills@laborlawyers.com Atlanta · Charlotte · Chicago · Columbia · Dallas · Denver · Fort Lauderdale · Houston · Irvine · Kansas City · Las Vegas Louisville · New Jersey · New Orleans · Orlando · Philadelphia · Portland ME · Portland OR · San Diego · San Francisco · Tampa www.laborlawyers.com