COBRA Subsidy is Extended Again
As we reported on our previous newsletter, On March 2, 2010 the President signed the Temporary Extension Act of 2010 (H.R. 4691). Section 3 of this act revises the COBRA Premium Subsidy under the American Recovery and Reinvestment Act of 2009 (ARRA).
There have been a few more clarifications and issues for you to consider. We’ve updated the information to help you navigate through this latest legislative requirement.
Under the revisions for Cobra Subsidy Extension:
- Extension of Eligibility Period for Involuntary Terminations. Employees who experience an involuntary termination of employment on or before March 31/2010 and meet all other requirements will now be eligible for the COBRA Premium Assistance Subsidy.
- Addition of Qualifying Events That are Reduction of Hours. Employees who experienced a reduction of hours on or before September 1, 2008 and terminate employment on or after March 2, 2010, but before March 31, 2010 may now be eligible for the COBRA Premium Assistance Subsidy.
- New Penalty Provisions. The employer/plan sponsor penalties and remedies that apply to the COBRA Notification requirement, now appear to apply to the ARRA Notification requirements.
- Protection for Employers Making Involuntary Termination Determinations. The Internal Revenue Service (“IRS”) will honor any employer determination of an involuntary termination if certain conditions are met.
What does that mean for employers?
Current ARRA Notifications must be updated with the new law deadlines and also include the new reduction of hours eligibility information. If you are using BCL Systems, Inc. COBRA Services this has been done for all notices mailed after 3/3/2010.
Notice of the effect of the new law must be mailed to the following individuals within the next 60 days:
- COBRA eligible employees whose qualifying event was a reduction of hours on or after 10/1/2008 as these individuals would still be within the 18 months COBRA coverage period as measured from the date of reduction of hours. It appears that an individual who elects COBRA after a reduction of hours and continue it through the date of subsequent termination of employment will not be entitled to any period of subsidy. (We are watching for further guidance on this issue from the DOL)
- All COBRA participants whose COBRA notice was mailed out between 2/28/2010 and 3/3/2010.
Please note that this new eligibility status for reduction of hours for the COBRA Premium Subsidy does not extend the time the person must be provided COBRA coverage and only applies to those employees who terminate employment after March 2, 2010.
So basically, if you have an employee who had a reduction of hours on October 5, 2008, lost health coverage effective October 31, 2008 and terminated employment on March 2, 2010; this employee would be able to elect COBRA coverage for the month of March, 2010 even if they declined it the first time and may be eligible for the COBRA premium subsidy.
Their COBRA coverage would be effective 3/1/2010 and end on 3/31/2010 (the end of the original 18 months of COBRA coverage eligibility due to the reduction of hours) and they would not be eligible for payment of any medical claims between 11/1/2008 and 2/28/2010.
Another Second bite at the apple (New Special Enrollment Right)
For those employees who are involuntarily terminated between March 2, 2010 and March 31, 201 and incurred a reduction of hours anytime on or after September 1, 2008, they will now have a second chance to elect COBRA coverage if they failed to elect COBRA at the time of the reduction of hours. The election period will be the latest of:
- 60 days after enactment (March 2, 2010) or 5/1/2010
- 30 days after receiving notice; or
- The end of the 30 day grace period for paying COBRA premiums.
Employer’s Determination of Involuntary Termination
The IRS will now adopt and honor an employer’s determination of an employee’s involuntary termination so long as (1) the employer bases its determination “on a reasonable interpretation” of ARRA and related administrative guidance; and (2) “the employer maintains supporting documentation of the determination, including an attestation by the employer of the involuntary termination with respect to the covered employee…”
It is not clear what the IRS will accept as and “attestation by the employer” but it is clear that they are willing to give employers and plan sponsors some leeway in determining whether or not a termination is voluntary or involuntary. We will continue to monitor and advise as things develop on this front.
Special Action Required from Employers/Plan Sponsors:
Notify your COBRA Service Provider when an employee who has lost coverage due to reduction of hours, terminates employment.
Review your termination procedures to ensure you have proper documentation to support an involuntary termination determination.
Employers/Plan Sponsors should make sure to keep accurate records regarding the reason for termination. Most employers already do this, but it appears that you may need to also place an affirmation in the employee’s file that clearly indicates you consider the termination involuntary for the purposes of ARRA. As always, you should check this with your own legal counsel to ensure you do not give an employee unintended rights under other Federal and State laws.
In the past, you may not have notified your COBRA service provider when a person who lost coverage due to a reduction of hours later terminated employment. Going forward, you should notify your COBRA service provider (BCL Systems, Inc. if we provide COBRA Admin Services to your company) of anyone who terminates employment after 3/2/2010 as they should be notified that they may have a special enrollment right to elect COBRA and receive the COBRA Premium Subsidy.
BCL Systems, Inc.
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