1. James H. Gilliam BrownWinick 666 Grand Avenue, Suite 2000 Des Moines, IA 50309-2510 Telephone: 515-242-2446 Facsimile: 515-323-8546 E-mail: gilliam@brownwinick.com COBRA UPDATES FOR EMPLOYERS – 2009

2. Where does the acronym “COBRA” come from?

3. Consolidated Omnibus Budget Reconciliation Act of 1986.

4. What was COBRA designed to do?

5. 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.

6. What employers are covered by COBRA?

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

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

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 As originally enacted: no tax deduction for health care plan costs Subsequent amendments: excise tax imposed

10. What are the “qualifying events”?

11. 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

12. What is required when a qualifying event occurs?

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

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

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

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

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

18. 60 days

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

20. 45 days

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

22. 18 months in most cases 29 months in the case of social security disability 36 months in divorce

23. What is the premium cost to the participant/beneficiary?

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

25. May the participant/beneficiary opt for a lesser coverage?

26. Yes, if those options are available to covered employees

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

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

29. What changes are new to COBRA for 2009?

30. American Recovery and Reinvestment Act of 2009 (ARRA)

31. What did ARRA do?

32. 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.

33. How does the subsidy work?

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

35. Which employees are eligible for the subsidy?

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

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

38. 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?

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

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

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

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

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

44. 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.

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

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

47. Are there any recommended forms available to employers?

48. 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

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

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

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

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

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

54. Employer may deny. Appeals are heard by DOL.

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

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

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

58. $110/day (ERISA) $100/day excise tax (IRS)

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

60. 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

61. Website: www.brownwinick.comwww.brownwinick.com Toll Free Phone Number: 1-888-282-3515 OFFICE LOCATIONS: 666 Grand Avenue, Suite 2000 Des Moines, Iowa 50309-2510 Telephone: (515) 242-2400 Facsimile: (515) 283-0231 616 Franklin Place Pella, Iowa 50219 Telephone: (641) 628-4513 Facsimile: (641) 628-8494