The U.S. Department of Labor (DOL) recently issued a set of notices and election forms for employers to use to meet the requirement that they provide notice to former employees and their family members regarding the availability of the federal subsidy of COBRA premiums.
That subsidy is available to certain former employees who were involuntarily terminated between September 1, 2008, and December 31, 2009, as well as their family members (assistance eligible individuals or AEIs). The subsidy usually begins on March 1, 2009, and can continue for up to nine months and is equal to 65% of the amount the AEI is otherwise required to pay for COBRA coverage. Please see our February 2009 Alert for more information about the COBRA subsidy.
The four model notices.
- General notice (full version). This notice describes the general provisions of COBRA as well as the provisions relating to the premium subsidy. The DOL has clarified that a general notice of this type must be provided to all persons who experience or have experienced a COBRA qualifying event of any type on or after February 17, 2009, and who are not now on COBRA and all persons who experienced a COBRA qualifying event between September 1, 2008, and February 16, 2009, and who have not yet received a COBRA notice. Thus, this new notice should be provided to all qualified beneficiaries who experience any type of qualifying event from February 17, 2009, through December 31, 2009. In addition, qualified beneficiaries who experienced a qualifying event before February 17, 2009, the effective date of the new law, and who have not yet received a COBRA notice should be given this new notice.
- General notice (abbreviated version). The abbreviated version of the general notice is tailored to qualified beneficiaries who have previously experienced a qualifying event and are presently on COBRA. All of those individuals who experienced a qualifying event on or after September 1, 2008, and who are now on COBRA should receive a copy of the abbreviated notice. It describes the premium subsidy and gives the qualified beneficiaries information about how to claim it. Although there is no fixed date for this notice to be sent, the DOL has suggested that notices sent by April 18, 2009, would generally be considered timely.
Both the full and abbreviated notices include descriptions of the subsidy and the forms a qualified beneficiary can use to claim the subsidy or to terminate the subsidy, for example, if the AEI becomes eligible for other group coverage.
- Alternative notice. The alternative notice is available for use by employers who are not subject to federal COBRA obligations (generally employers with fewer than 20 full-time equivalent employees) but who have COBRA obligations under state insurance laws such as Minnesota COBRA continuation provisions. The DOL expects insurance companies to complete and send these notices to individuals eligible for state COBRA continuation so that they can claim the premium subsidy.
- Extended election period notice. Employers subject to federal COBRA provisions must offer a second COBRA election period to AEIs who experienced a qualifying event associated with involuntary termination of employment during the period from September 1, 2008, through February 17, 2009, and who either did not elect COBRA or who elected but did not continue COBRA. This notice can be used to inform those persons of the extended election period. It also describes the subsidy. AEIs must be given at least 60 days after the date they receive the notice during which they can make the second election, effective back to the first coverage period beginning after February 17, 2009 (March 1, 2009, for employers offering COBRA on a monthly basis). This new notice must be sent by April 18, 2009. The DOL has suggested that employers may wish to send this notice to any individual whose qualifying event may be associated with an involuntary termination even if the employer is not certain that the individual could qualify for the subsidy (e.g., the employer is not certain that the circumstances of the termination made it "involuntary"). The individual can then request the subsidy and the employer can make a determination regarding qualification at that time.
By using the general COBRA structure to support the extended election period, the DOL has made it clear that AEIs who have 60 days in which to make an election of COBRA coverage will also have 45 days in which to make their first premium payment, much like the 45 days that qualified beneficiaries generally have to make the first COBRA premium payment.
FAQs on DOL and IRS websites.
The DOL website provides a set of FAQs for employers and employees with additional information about the COBRA subsidy. Employers will also find new questions and answers posted on the Internal Revenue Service (IRS) website.
Filling in some of the blanks.
Although the model notices and election forms are helpful, they leave questions unanswered. For example, there is still no comprehensive definition of involuntary termination of employment, although the guidance does indicate that an employee on indefinite layoff would be considered involuntarily terminated. Practitioners are expecting the IRS to issue additional guidance on the subsidy shortly, including a definition of "involuntary termination."
The DOL forms include a subsidy election form separate from the COBRA election form. Thus, under the model notices, an AEI must make a separate affirmative election to take the subsidy. The IRS website states that an employer should not provide the subsidy automatically since the employer will not know whether an AEI has other coverage available and since the availability of other coverage would disqualify the AEI for the subsidy. The DOL subsidy election form requires the AEI to answer several questions regarding subsidy eligibility and to sign and return the form. The employer can indicate its approval or denial of the subsidy directly on the form, including the reason for the denial. An employer denying a subsidy should return a copy of the completed form with the reason indicated to the AEI. That information may then be available to the DOL if it is asked to decide an appeal from an AEI who is denied the COBRA subsidy. Employers should keep copies of these forms as well as evidence of the notices sent to the different individuals.