On Tuesday, Feb. 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 ( the $787 billion economic stimulus package).
Two provisions of the Act will have an immediate impact on employers. First, it creates a federal COBRA premium subsidy and a new enrollment period for certain terminated employees. Second, the Act provides robust whistleblower protection for employees who report the gross waste or fraudulent use of stimulus funds.
Premium Assistance for Health Care Continuation Coverage
The Act creates a nine-month, 65% federal subsidy of health care continuation coverage (COBRA) for eligible individuals (and their qualified beneficiaries) who were involuntarily terminated from Sept. 1, 2008 to Dec. 31, 2009 for reasons other than gross misconduct.
These requirements apply to both federal COBRA benefits and comparable state law continuation coverage mandates for employers not subject to federal COBRA, and they affect self-funded health plans, as well as insured arrangements. Employers have only 60 days — until April 18, 2009 — to notify affected individuals about this premium subsidy and the right to a new enrollment period for COBRA coverage.
The new enrollment period started on Feb. 17, 2009 and ends 60 days after the employee actually receives the required notification. The coverage becomes effective March 1, 2009 for any individual who elects or changes coverage under these rules. An employer may, at its option, also allow an individual eligible for the subsidy to change their existing COBRA coverage chosen at the time of termination as long as the new option does not have a higher premium and is offered to active employees at the time of the election. This change must be made within 90 days after receiving the new notice.
The Act requires eligible individuals to pay only 35% of the COBRA premium, and the employer will be responsible for paying the remaining 65%. Employers will be able to recoup the 65% by claiming a credit against their federal payroll taxes, by filing a report detailing information about the terminated employees, the calculated and estimated offsets, the amount of subsidy provided to each individual, and information regarding whether the subsidy was for individual or family coverage.
If an individual becomes eligible for Medicare or another group health plan or is otherwise no longer eligible for COBRA, then the subsidy ends, and the individual must notify the plan administrator. Eligible individuals who paid their full COBRA premiums before the passage of the Act may seek reimbursement for the overpayments.
Individuals with incomes exceeding $145,000 per year and couples with incomes exceeding $290,000 per year are not eligible for the subsidy, and the subsidy is phased out starting at $125,000 for individuals and $250,000 for couples. Individuals who are not eligible for the subsidy may make a permanent election to waive the subsidy. However, individuals who are not eligible but still elect the subsidy will be required to repay the 65% as part of their federal income taxes.
Employers should take immediate action to comply with the law by the impending deadline. The first step is to identify eligible individuals who were terminated on or after Sept. 1, 2008 and their qualified beneficiaries.
Employers must also revise their COBRA notice materials to comply with the specific requirements set forth in the Act. The notice must contain: (1) the form necessary to establish eligibility for the subsidy, (2) contact information for the plan administrator, (3) a description of the extended election period, (4) a description of the individual`s obligation to inform the plan if he becomes eligible for Medicare or another group health plan, (5) a description of the right to the 65% subsidy, and (6) a description of the individual`s right to select another COBRA plan if such option is offered by the employer.
The Department of Labor will issue a model notice within 30 days of the enactment of the new law (by March 19, 2009), and employers must provide the required notice to affected individuals before April 18, 2009 or face civil penalties. Employers need not worry about whether individuals meet the income eligibility requirements and will still need to pay the 65% subsidy for all individuals who elect coverage. If the individual is actually ineligible for the subsidy, he must reimburse the government for the 65%. Employers should also begin adjusting their payroll systems to coordinate the payment of their portion of the COBRA premiums and should implement a system for obtaining reimbursement and determining overpayments.
New Protection for Whistleblowers
Any employer taking stimulus funds is also subject to the whistleblower protections contained in the stimulus bill, including employers who seek reimbursement for the 65% of COBRA premiums.
Employees who disclose mismanagement, waste, abuse or violations of law related to stimulus funds cannot be discharged, demoted or otherwise discriminated against as a reprisal for disclosing such information to their supervisors, certain government agents, law enforcement, or a court or grand jury.
Before filing a civil suit, an employee must first file a complaint with the appropriate inspector general, who must investigate the complaint and issue a report to the employee, the employer, the head of the appropriate Federal agency and the board within 180 days. The inspector general also has discretion to refuse to conduct or continue an investigation, allowing the employee to immediately file a civil action.
To prevail in a whistleblower action under the Act, an employee need only prove that his complaint was a ``contributing factor`` in the employer`s adverse action and may use circumstantial evidence to meet this burden. To rebut the employee`s claim, the employer must overcome an onerous burden to prove by ``clear and convincing`` evidence that it would have taken the same action in the absence of the employee`s disclosure.
Within 30 days of receiving an inspector general`s report, the head of the applicable agency must determine whether there is sufficient basis to conclude that the employer violated the Act and must issue an order either denying relief in whole or in part, or granting relief, including reinstatement, compensatory damages (including back pay and benefits), and costs and expenses (including attorney and expert witness fees). In the event the agency denies relief in whole or in part, the employee may file a civil action, seeking the same remedies in a jury or bench trial. The head of an agency can also institute a civil action against an employer who fails to comply with an agency`s order for relief, and the court may award injunctive relief, and compensatory and punitive damages.
Employers should be aware of these new protections afforded to whistleblowers, especially because the Act applies to disclosures made to an employee`s supervisor. The burden on the employee is relatively light if the employer knew of the disclosure or if the adverse action is taken within a certain period of time after the report.