In a previous communication, we advised employers of the new COBRA subsidy included as part of the American Recovery and Reinvestment Act of 2009 (ARRA). Click here for a copy of this communication.
Since that time, the Department of Labor (DOL) and the Internal Revenue Service (IRS) have issued additional guidance intended to help employers implement the subsidy. On March 19, 2009, the DOL issued model notices that can be used to communicate information about COBRA elections and the subsidy to COBRA qualified beneficiaries. While the notices may be helpful in communicating with participants, we have identified the following potential traps for employers.
Employers may need to issue as many as three different notices
General Notice (full version). Plans subject to Federal COBRA law (generally, those covering 20 or more employees) must send the General Notice to all qualified individuals and their beneficiaries who experience a qualifying event at any time from September 1, 2008 through December 31, 2009, regardless of the type of qualifying event. This full version of the General Notice should be sent to qualified individuals and their beneficiaries who have not yet received a COBRA notice. It includes general COBRA information as well as information on the premium reduction. PDF of General Notice (Full version)
General Notice (abbreviated version): The abbreviated version of the General Notice includes the same information as the full version of the General Notice with respect to the availability of the premium reduction and other rights under ARRA, but it does not include general COBRA coverage election information. This abbreviated version of the General Notice should be sent to qualified individuals and their beneficiaries who experienced a qualifying event on or after September 1, 2008 and who currently have COBRA coverage. PDF of General Notice (abbreviated version)
Notice in Connection with Extended Election Periods: This notice includes information on the additional election opportunity (required by ARRA) applicable to plans subject to Federal COBRA law, as well as premium reduction information. This Extended Election Notice must be sent to any qualified individuals and their beneficiaries who: 1) experienced a qualifying event at any time from September 1, 2008 through February 16, 2009; and 2) either did not elect COBRA continuation coverage, or elected but subsequently discontinued COBRA (regardless of the reason). This notice must be provided by April 18, 2009. PDF of Extended Election Period Notice
The DOL also issued a model notice for use by employers who are subject to State continuation of coverage laws. However, this form may not satisfy State notice requirements and therefore may not be useful as a starting point.
Employers must adapt the notices to their particular situations
Each of the notices will need to be reviewed carefully and tailored to the employer's particular situation. For example, if the employer is allowing different coverage elections, the General Notice provides that the employer should list available coverage options. However, the General Notice also provides that the employer should provide coverage costs, but it does not include model language for providing these costs if different coverage if offered.
Qualified beneficiaries may need to affirmatively elect the COBRA premium reduction
Previous governmental communications implied that qualified beneficiaries who qualify for the premium reduction would automatically receive the subsidy and would need to affirmatively waive the premium reduction (for example, if their income limits exceeded the amounts permitted under ARRA). The model notices, however, include a form that qualified beneficiaries must complete in order to apply for the premium reduction.
What is not clear, however, is what happens if a qualified beneficiary submits only 35% of the COBRA premium and does not complete a premium reduction application. The safe answer would seem to be that the employer should nonetheless apply the subsidy. However, the premium reduction application requires that the qualified beneficiary indicate that he or she is not otherwise eligible for group health coverage or for Medicare. If a qualified beneficiary receives the premium reduction while he or she is eligible for group health plan coverage or Medicare, he or she may be subject to a tax penalty. Applying the subsidy in the absence of an affirmative indication that such limitations do not apply might expose the employer to potential liability for the amount of the tax penalty.
Different election periods may apply
Under federal law, qualified beneficiaries have 60 days from receipt of the COBRA notice to elect COBRA coverage. While this remains true, other election periods apply to other portions of the notices.
Employers offering different coverage must give qualified beneficiaries 90 days after receipt of the notice to elect different coverage. No guidance has been provided as to how this should work practically, if for example, the qualified beneficiary submits a COBRA election within 10 days of receiving the notice, but then chooses different coverage 80 days later.
The model notices do not include a cut-off date for electing the COBRA subsidy. The notices are either silent about when the election must be submitted (in the case of the notice for qualified beneficiaries with current COBRA coverage) or indicate that the election can be submitted with the COBRA election or separately. This leaves open the question of what happens if a qualified beneficiary elects COBRA coverage, but does not submit the premium reduction election for six months.