Employer’s Guide to the COBRA Subsidy Contained In the
New Federal Economic Stimulus Package FAQs

An important provision of the recently enacted American Economic Recovery and Reinvestment Plan (commonly referred to as the Economic Stimulus Package) provides a temporary subsidy to certain individuals with health insurance provided under COBRA or under a state continuation law. In addition, some individuals who have declined a previous opportunity to enroll in COBRA coverage will be given a second opportunity to enroll.

This summary is designed to answer many questions Employers may have regarding the affect of the new subsidy on their COBRA participants and the Employer’s new obligations. Employers with specific questions that are not addressed in this Questions and Answer Summary are encouraged to e-mail them to Admin America at cobrastimulus@adminamerica.com.
 

01) Which Employers are subject to the new provisions regarding the COBRA Subsidy?

02) Which individuals are eligible for the COBRA Subsidy?

03) What is the amount of the COBRA Subsidy?

04) Which types of COBRA coverages are eligible for the subsidy?

05) Does the COBRA Subsidy allow AEIs to change their coverages?

06) Is the COBRA Subsidy limited or eliminated based on an AEI’s income?

07) To avoid income tax recapture of the Subsidy, can a high income AEI waive their rights to the subsidy?

08) When does the COBRA Subsidy begin?

09) What if an AEI pays their full premium for a month in which they are entitled to the COBRA subsidy (for example in March or April of 2009 before they learned of the subsidy)?

10) What is the duration of the COBRA Subsidy?

11) Does the new COBRA Subsidy lengthen the amount of time an AEI may stay on COBRA or state continuation?

12) What if the AEI fails to notify the Employer once they are eligible for other comprehensive group health coverage or Medicare?

13) If an AEI becomes eligible for other comprehensive group health coverage or Medicare but chooses not to enroll in that coverage, do they still lose the COBRA Subsidy?

14) If an AEI becomes eligible for other comprehensive group health coverage or Medicare but chooses not to enroll in that coverage, do they lose the right to continue under COBRA without the COBRA Subsidy?

15) If the AEI only pays 35%, what does the Employer pay to the Insurance Carrier?

16) How and when does the Employer obtain the funds for the COBRA Subsidy from the Federal Government?

17) What new COBRA notice requirements are Employers responsible for?

18) How long do Employers have to become compliant with these notification requirements?

19) What is the exact required language in the two new notices?

20) If an AEI takes advantage of the special 60 day election period, when does their COBRA coverage restart and how long does it last?

21) If an AEI takes advantage of the special 60 day election period but their original qualifying event was earlier, does the intervening period of time count as a break in coverage under HIPAA’s pre-existing limitation rules?

22) What should Employers be doing now?

23) How will Admin America assist their COBRA clients with compliance with the new rules?

24) What is Admin America’s current timeline for aiding their COBRA clients with compliance with the new rules?

Employer’s Guide to the
 COBRA Subsidy Contained In the
 New Federal Economic
 Stimulus Package FAQs

01) Which Employers are subject to the new provisions regarding the COBRA Subsidy?

All Employers subject to COBRA must offer the COBRA subsidy to their eligible qualified beneficiaries and comply with the additional notification requirements contained in the new law. In addition, Employers subject to state continuation laws are also affected by the subsidy to the extent they collect premiums from former employees and remit them to their group insurance carrier(s). (return)

02) Which individuals are eligible for the COBRA Subsidy?

Employees (as well as their covered spouse and covered dependents) who lose their group insurance coverage due to the involuntary loss of their job or reduction of hours (other than for gross misconduct) on or after September 1, 2008 but before December 31, 2009 are eligible for the COBRA Subsidy. These individuals are known as “Assistance Eligible Individuals” or “AEIs”. (return)

03) What is the amount of the COBRA Subsidy?

The subsidy is 65% of the AEI’s required monthly premium contribution. Typically, AEIs will therefore be required to pay only 35% of the required premium to the Employer (or directly to the insurer in some state continuation situations). Note: If the Employer is paying a portion of the COBRA premium on behalf of an AEI, the subsidy would only be for 65% of the AEI’s remaining premium. The Employer’s contribution in that situation is not subsidized. (return)

04) Which types of COBRA coverages are eligible for the subsidy?

The subsidy is available for any health coverage offered through COBRA (including dental, vision, employee assistance programs, etc) except for Health FSA coverage offered through a Cafeteria Plan. (return)

05) Does the COBRA Subsidy allow AEIs to change their coverages?

The new law gives Employers that offer multiple plans of health insurance coverage the option to allow their AEIs to switch from a higher premium plan to a lower premium plan. This option is not applicable to coverage provided by dental, vision, EAPs or Health FSA plans. Employers are not required to offer this option. Employers that do make this option available are required to give AEIs 90 days to elect such a change and are required to include notice of this option in their COBRA communications. (return)

06) Is the COBRA Subsidy limited or eliminated based on an AEI’s income?

Yes. AEIs earning between $125,000 and $145,000 (between ($250,000 and $290,000 for joint returns) would have their income tax increased for a percentage of the total Subsidy received in that year. AEIs earning more than $145,000 ($290,000 for joint returns) will have their income tax increased by the total amount of the subsidy they receive. If the AEI is a dependent of another taxpayer, the limitation is based on the taxpayer’s income and that individual would be subject to the subsidy recapture through their income taxes. Note: Because of this process, the Employer is not responsible for verifying the AEI’s total income. (return)

07) To avoid income tax recapture of the Subsidy, can a high income AEI waive their rights to the subsidy?

Yes. The waiver must be in writing from the AEI to the Employer. It is expected that the government will issue rules regarding the context of these waivers so that Employers may provide a standard waiver form to interested AEIs. Note: the waiver is permanent and not revocable in subsequent tax years. (return)

08) When does the COBRA Subsidy begin?

Beginning with the first period of coverage beginning after February 17, 2009 (therefore, for most plans the subsidy will begin March 1, 2009). (return)

09) What if an AEI pays their full premium for a month in which they are entitled to the COBRA subsidy (for example in March or April of 2009 before they learned of the subsidy)?

The Employer would either issue a refund of the overpayment amount to the AEI or credit the overpayment to subsequent premiums of the AEI which would accrue within 180 days. Unused credits must be refunded within 60 days of the date the Employer has a reasonable belief the credit will not be used. (return)

10) What is the duration of the COBRA Subsidy?

The COBRA Subsidy is provided to an AEI for up to nine months. The subsidy ends if the AEI becomes eligible for other comprehensive group health coverage or Medicare. For subsidies of state continuation coverage, the subsidy ends if the individual’s state continuation coverage period expires. The subsidy does extend a state’s continuation coverage period. (return)

11) Does the new COBRA Subsidy lengthen the amount of time an AEI may stay on COBRA or state continuation?

No. Versions of the bill that were proposed in Congress did contain provisions that would allow certain individuals to stay on COBRA for longer periods of time. Those provisions are not in the final version that was signed into law. Additionally, no changes are imposed on the duration of state continuation coverages by this law. (return)

12) What if the AEI fails to notify the Employer once they are eligible for other comprehensive group health coverage or Medicare?

AEIs who fail to provide notice of eligibility for other coverage or Medicare are subject to penalties equal to 110% of any subsidies paid on their behalf after the date of eligibility. (return)

13) If an AEI becomes eligible for other comprehensive group health coverage or Medicare but chooses not to enroll in that coverage, do they still lose the COBRA Subsidy?

Yes. (return)

14) If an AEI becomes eligible for other comprehensive group health coverage or Medicare but chooses not to enroll in that coverage, do they lose the right to continue under COBRA without the COBRA Subsidy?

No. They can continue their COBRA coverage if they so choose; the federal government just will not subsidize the premium any longer. (return)

15) If the AEI only pays 35%, what does the Employer pay to the Insurance Carrier?

For fully insured plans, the Employer continues to pay the insurance carrier the full amount of the billed insurance premium. In this instance, the Employer would be reimbursed by the Federal Government for the difference in the form of the COBRA Subsidy. (return)

16) How and when does the Employer obtain the funds for the COBRA Subsidy from the Federal Government?

When the Employer submits their payroll taxes to the Internal Revenue Service, the Employer will also file a claim for reimbursement from the IRS for the amount of the subsidy. The Employer will then withhold the amount of the COBRA Subsidy reimbursement from the amount of the payroll taxes it would otherwise be required to submit. Employers that utilize third party payroll companies to handle their payroll tax filings should inquire regarding that vendor’s procedures for communicating the COBRA Subsidy claims for reimbursement. (return)

17) What new COBRA notice requirements are Employers responsible for?

There are two new types of notice requirements.

First, Employers must notify current AEI’s covered under COBRA (or still eligible to elect COBRA) and future AEI’s who elect COBRA about the COBRA Subsidy. Future AEI’s may be properly notified by properly amending the Employer’s COBRA Election letter. Notifying currently covered AEI’s (and AEIs still eligible to elect COBRA) requires that a supplemental notification be sent. This notification must include any forms the Employer will require the AEI to complete to establish eligibility for the COBRA Subsidy as well as other relevant information about an AEI’s rights and obligations regarding receipt of the subsidy.

Second, AEIs that failed to elect COBRA within their 60 day election period or that elected COBRA but subsequently lost coverage due to a failure to pay their premiums in a timely manner must be notified of a special 60 day election period to regain their coverage and take advantage of the COBRA Subsidy. (return)

18) How long do Employers have to become compliant with these notification requirements?

Employers must send out the required notices to affected AEIs no later than April 18, 2009. (return)

19) What is the exact required language in the two new notices?

The U.S. Department of Labor is required to issue model notices on or before March 19, 2009. (return)

20) If an AEI takes advantage of the special 60 day election period, when does their COBRA coverage restart and how long does it last?

COBRA coverage for such an individual begins on the first day of the period of coverage beginning after February 17, 2009 (usually March 1, 2009). However, the AEI’s COBRA coverage will last 18 months from the date of the original qualifying event (when they originally lost their coverage due to the involuntary job loss or reduction of hours). (return)

21) If an AEI takes advantage of the special 60 day election period but their original qualifying event was earlier, does the intervening period of time count as a break in coverage under HIPAA’s pre-existing limitation rules?

No. Employers need to adjust the language in their HIPAA Certificates of Creditable Coverage to insure that the language in those letters complies with this rule. (return)

22) What should Employers be doing now?

Employers should immediately begin compiling lists regarding their AEIs so that they can determine what communications need to be sent to whom. Employers should further distinguish between AEIs that are COBRA participants after February 17 versus AEIs that forfeited COBRA coverage due to a failure to make a timely election or failure to make a timely payment in order to know which AEIs should be sent which type of communication.

Employers that offer multiple health insurance plans need to decide if they want to offer AEIs the option to switch from a higher premium plan to a lower premium plan. Employers will need to weigh the additional administrative requirements raised by offering such an option versus the benefit provided to AEIs that have lost their employment and therefore would benefit from switching to a lower cost health plan.

Employers should plan to adjust their COBRA communications to comply with the model notices to be issued by the U.S. Department of Labor or have their in-house or retained legal counsel prepare new communications that comply with the Act. Employers who outsource their COBRA responsibilities to a third party should familiarize themselves with their COBRA administrators plan and timeline for compliance.

Employers utilizing third party payroll administration companies should contact those vendors to determine what information will be required in order for the Employer to properly claim reimbursement from the federal government against their payroll tax submissions. (return)

23) How will Admin America assist their COBRA clients with compliance with the new rules?

Admin America will provide COBRA clients and their health insurance agents with educational materials regarding the COBRA provisions contained in the Economic Stimulus Act. The materials will explain the specific provisions of the law and will also explain the Employer’s responsibilities under the Act.

Admin America will assist COBRA clients with identifying their AEIs.

Admin America will notify AEIs of their rights under COBRA as affected by the COBRA Subsidy and will notify AEIs who have lost their COBRA eligibility regarding their special 60 day enrollment window. Additional administrative fees will apply for COBRA clients who enrolled in Admin America’s administration services after September 1, 2008.

Admin America will process any necessary premium adjustments or refunds based on overpayments made by AEIs in March or April of 2009. (return)

24) What is Admin America’s current timeline for aiding their COBRA clients with compliance with the new rules?

02/17/09 – New COBRA Rules Enacted By Federal Government (The Enactment Date)

02/25/09 – Admin America Updates COBRA Clients and Their Insurance Agents Via E-Mail Regarding The New Rules and Publishes Employer Q & A Compliance Workflow and Timeline

02/27/09 – Admin America Publishes Employer’s Guide To COBRA Subsidy On Internet at www.adminamerica.com To Assist Agents and Employers In Explaining Subsidy Provisions To Potential AEIs

02/27/09 – Admin America Sends COBRA Clients Via U.S. Mail Their List of Qualified Beneficiaries With Qualified Event Dates Subsequent to September 1, 2008 For Client To Identify Those Who Lost Coverage Due To Involuntary Termination or Reduction of Hours. Admin America Also Requires Clients That Offer Multiple Health Insurance Plan Options To Determine If They Will Allow AEIs To Elect Plan Option With Lower Premium

03/02/09 – Periods of Coverage For Which AEIs Are Eligible For Subsidy Begin; Admin America Will Accept and Process Payments For The Full Premium Amount and Those Which Are Reduced By the Amount of the Subsidy

03/02/09 – Admin America Publishes Reminder In E-Newsletter to COBRA Clients To Respond To Mailed Request For Information

03/02/09 – 04/10/09 – Admin America Will Process AEI Information Returned By COBRA Clients and Process Employer’s Election Regarding Option Ability For AEIs To Reduce Coverage

03/17/09 – 03/19/09 – Admin America Will Follow Up Via Telephone With COBRA Clients Who Have Failed To Return Potential AEI Identification Worksheets Mailed Out On 02/27/09

03/19/2009 – Deadline for U.S. Department of Labor to Issue Model Notice Provisions Related To COBRA Subsidy

04/03/09 – Expected Delivery From DataPath, Inc. (Admin America’s COBRA Software Vendor) of Updated Notice Language For System Generated Notices Based On U.S. D.O.L. Model Language

04/06/09 - 04/10/09 – Internal Testing of New COBRA Notice Generation

04/14/09 – Admin America Will Generate and Mail COBRA Stimulus Notifications

04/20/2009 – Deadline for Admin America to Mail COBRA Subsidy Notifications to AEIs

05/06/09 – Admin America Will Process Credits Or Refunds As Applicable For AEIs Who Paid 100% of March 2009 and/or April 2009 Premium (return)

This page was last updated on 10/05/2009