The recently enacted American Recovery and Reinvestment Act added a complex temporary federal subsidy for certain health care premiums. Employers and insurers of group health plans (including plans not subject to COBRA) are required to provide notices to qualified beneficiaries of these changes. The Department of Labor has issued four model notices to be used in different circumstances.
Immediate action will be required to review these model notices and prepare appropriate notices to send to qualified beneficiaries.
On March 19, 2009, the Department of Labor issued model notices for the COBRA subsidy provisions enacted as part of the American Recovery and Reinvestment Act ("ARRA"). This subsidy was described in our Feb. 24 alert, "New COBRA Rules Under Stimulus Bill Require Immediate Attention by Employers, Insurers and Third Party Administrators." Generally, ARRA provides a 65 percent subsidy in the form of a reduction in premiums that assistance-eligible individuals must pay for their health care continuation coverage. This subsidy is available to any plan participant whose employment was involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009 and his or her qualified beneficiaries. Notices to qualified beneficiaries whose employment terminated between Sept.1, 2008 and Feb. 16, 2009 must be provided by April 18, 2009, although the normal COBRA notice timing rules appear to apply with respect to terminations of employment on or after Feb. 17, 2009.
The DOL's model notices are posted on its website at www.dol.gov/COBRA. The DOL has issued four model notices and has posted "frequently asked questions" and related information for both employers and employees. These model notices will enable employers, insurers and third party administrators to start preparing notices to send to qualified beneficiaries. Each notice informs qualified beneficiaries of the terms of the change of law, the premium reduction, and includes forms they will need to complete and return in order to apply for the premium reduction.
Types of Notices
The Model General Notice (full version) is for plans subject to federal COBRA provisions to send to all qualified beneficiaries with a qualifying event between Sept. 1, 2008 and Dec. 31, 2009 who have not yet received an election notice. This General Notice must be provided to all qualified beneficiaries, whether or not they are an "assistance-eligible individual" under the COBRA premium reduction rules. This full version includes general information about COBRA as well as information about the temporary premium reduction.
The Model General Notice (abbreviated version) may be sent instead of the Model General Notice (full version) to assistance-eligible individuals who experienced a qualifying event on or after Sept. 1, 2008, have elected COBRA coverage and still have COBRA coverage. This abbreviated version does not include the COBRA coverage election information (since the individual has elected and still has COBRA coverage) but does include information about the temporary premium reduction.
The Model Notice in Connection with Extended Election Periods is for plans to send to qualified beneficiaries with a qualifying event between Sept.1, 2008 and Feb. 16, 2009 who either did not elect COBRA coverage or elected it and discontinued coverage. This notice informs them of (i) their rights to a "second chance" to elect COBRA within 60 days of the date the notice is provided and (ii) the temporary premium reduction. This notice must be provided by April 18, 2009.
For plans that are not subject to federal COBRA laws but are subject to state continuation laws, the DOL's website has a Model Alternative Notice. Employers who are subject to state continuation laws will need to modify this model notice to reflect certain state law provisions that apply. While employers who are not subject to COBRA are not required to provide the "second chance" period to elect COBRA, the DOL's FAQs for employers notes that states can take action to provide a similar right under state continuation laws.
Each notice includes forms for switching continuation coverage benefit options, if the employer chooses to permit qualified beneficiaries entitled to the premium reduction to elect less costly coverage alternatives under the plan.
It is important for employers, insurers and third party administrators responsible for compliance with COBRA (and similar state laws) to carefully review these notices. These forms are complicated and it will take time to determine which qualified beneficiaries should get which forms and develop procedures for their use. These forms are models and will require the employer, insurer or third party administrator to add coverage specific information.
The model forms include clarification that the right to pay a reduced premium will cease when the individual becomes eligible for coverage under Medicare or under any other group health plan (including a plan sponsored by a spouse's employer). We understand that the DOL plans to issue other guidance, including guidance on the important issue of what is an "involuntary termination" that permits a former employee (and spouse and dependents) to qualify for the subsidy.
The DOL's website (www.dol.gov/COBRA) includes both DOL updates and notices, as well as a link to the recent information published by the IRS on reporting and recovering of the subsidy.