The American Recovery and Reinvestment Act of 2009 (ARRA) provides a government subsidy for COBRA for individuals who have lost group health plan coverage due to an involuntary termination of employment from September 1, 2008 through December 31, 2009. Individuals who have had a qualifying event entitling them to COBRA since September 1, 2008 must receive notice of the newly available premium assistance. Plans must provide this notice by April 18, 2009 for those individuals whose qualifying event occurred before February 17, 2009 (the date ARRA was enacted). Model Notices As we alerted you yesterday, the Department of Labor (DOL) has issued its model notices for the COBRA premium assistance under ARRA as well as additional guidance in the form of summaries included with the model notices and FAQs for employers and employees (available at www.dol.gov/COBRA). Even if you have sent out your special notices regarding the ARRA subsidy, you will want to review the models and the guidance to determine whether any additional information should be given. There are four separate DOL model notices covering different situations:
- General Notice. This notice is the “full version” to be sent to all qualified beneficiaries who experienced (or will experience) a qualifying event at any time from February 17, 2009 through December 31, 2009, or who do not receive one of the other notices described below. This general notice will take the place of the COBRA qualifying event notice through the remainder of 2009.
- Second Chance Notice. This notice (identified as the “Notice in Connection with Extended Election Periods”) is the version to be sent to those individuals who had a qualifying event at any time from September 1, 2008 through February 16, 2009 and either did not elect COBRA continuation coverage at that time, or who elected but subsequently discontinued COBRA. This notice does not apply to those who are not covered by COBRA, but are receiving continuation coverage under state law. State law should be reviewed in this case.
- Subsidy Only Notice. This notice (identified as the “Abbreviated Version” of the General Notice) is intended to be provided to those individuals who experienced a qualifying event on or after September 1, 2008, and who elected and still have COBRA coverage. This notice permits such individuals to elect the subsidy.
- Alternative Notice. This is the notice that insured plans that are not subject to federal COBRA (e.g., because there are less than 20 employees) must send to persons who are or were eligible for continuation coverage under State law.
Our previous Management Alerts and Teleconference highlighted several important issues that were not addressed in ARRA or that were raised in previous (including informal) government pronouncements. The guidance issued by DOL clarified some of these issues and left others untouched.
- Consistent with the notices, the guidance provides that an Assistance Eligible Individual must make a separate election to receive the subsidy.
- The guidance also makes it clear that the separate subsidy election may be made at a different time than the COBRA election, but does not explain when a later subsidy election would have to be applied (i.e., whether it would be retroactive).
- Under the guidance, individuals entitled to a second chance election may get a new COBRA election even without electing the subsidy.
- The guidance clarifies that children born to or adopted by an Assistance Eligible Individual after an involuntary termination are eligible for the subsidy.
- However, the guidance fails to address certain issues, such as the meaning of “involuntary termination.”
Assistance Eligible Individuals Must Make Separate Election to Receive Subsidy
To receive COBRA premium assistance under ARRA, the individual must complete a separate form attached to each of the model notices. The form requires individuals applying for premium assistance to make five representations: (1) they were involuntarily terminated; (2) their loss of employment occurred at some point from September 1, 2008 through December 31, 2009; (3) they either have elected or are electing COBRA (or State) continuation coverage; (4) they are not eligible for other group health plan coverage (and were not eligible at any point during the period for which they are claiming a reduced premium); and (5) they are not eligible for Medicare (and were not eligible at any point during the period for which they are claiming a reduced premium).
As we previously reported, informal comments by representatives of the Internal Revenue Service and the DOL indicated that Assistance Eligible Individuals would need to affirmatively elect the subsidy and the model notices confirm this. However, the statute itself appears to make the reduced premium self-executing for those COBRA-covered individuals who are Assistance Eligible Individuals by deeming a payment of 35% of the COBRA premium to be full payment, and by allowing those individuals to waive the premium assistance. In fact, the statute specifically requires the Secretary of the Treasury to specify the time, form, and manner of a waiver—something that the DOL has made wholly irrelevant by requiring an affirmative election.
Interestingly, there does not appear to be any time period during which a person must make the election to be treated as an Assistance Eligible Individual. The normal COBRA time frames are not relevant and no special time frame was indicated. Apparently, a person in this situation could approach the plan months after a COBRA election to have the COBRA premium reduced. This omission raises the question of whether such an election could be retroactive and how to measure the ninemonth subsidy period.
For many employers, this imposes a substantial layer of administration, as it must separate Assistance Eligible Individuals into two groups, charge the two groups different amounts for COBRA during the subsidy period and move individuals between groups when they make an election (or, if waivers are still viable, when they waive premium assistance).
Second Bite at COBRA for Second Chancers
As we previously reported, informal comments by the agencies indicated that those individuals who would be Assistance Eligible Individuals due to an earlier involuntary termination of employment (on or after September 1, 2008), but who did not elect or continue COBRA could make a new COBRA election, even if they did not elect to receive the premium assistance. This could be the case, for example, if someone was above the income limits for the year. This position would, in effect, give someone who is not in need of premium assistance a new open enrollment period for COBRA.
The Second Chance Notice, while not directly addressing the issue, seems to support the second bite interpretation. Attached to the model notice are a form for electing COBRA and a separate form for electing treatment as an Assistance Eligible Individual. The instructions to the COBRA election form state that, under ARRA, an individual is entitled to elect COBRA continuation coverage at this time if he or she “lost group health plan coverage due to an involuntary termination of employment during the period that begins with September 1, 2008 and ends with December 31, 2009.” It does not condition the COBRA election on a required election for premium assistance (and, on its face, does not even condition the COBRA election on being eligible for premium assistance, so that an Assistance Eligible Individual who was eligible for other group coverage might be able to elect COBRA even though he or she is not in the group ARRA appears to be trying to help). The questions attached to the Second Chance Notice as well as the FAQs address an individual’s right to elect COBRA continuation coverage and, again, do not condition it on their application for the premium assistance.
Newborn and Adopted Children Eligible
Based on the statute and the interim guidance requiring a person to have coverage at the time of the involuntary termination in order to be eligible for premium assistance, a concern surfaced as to whether new spouses or newborn and adopted children who become dependents of the employee after the involuntary termination may be covered at the subsidized rate. The FAQs for Employees affirmatively allow newborn and adopted children to elect coverage at the subsidized rate, as they are categorized as qualified beneficiaries having the same rights as someone who had coverage at the time of the qualifying event. A newly added spouse does not have an independent right to COBRA at the subsidized rate, however, because he or she was not covered at the time of the qualifying event and is therefore not a qualified beneficiary.
Unfortunately, neither the model notices nor the guidance address how to determine whether a termination of employment is involuntary. Other than the brief statements in the House Ways and Means FAQs (that an involuntary termination is one at the direction of the employer and that death is not an involuntary termination), we have no further guidance as of this date. That guidance presumably is still forthcoming.
The guidance reiterates that an individual who has been denied treatment as an Assistance Eligible Individual by the health plan may appeal to the DOL (or Department of Health and Human Services in the case of a plan not subject to federal COBRA). The DOL also states that an appeal must be made on the DOL application form, but that appeal form does not appear to be available at this time. The DOL states that the form will soon be available on its website and can be completed online or mailed or faxed as indicated in the (yet-to-be-issued) instructions. The DOL website also recommends that employees speak with an Employee Benefits Security Administration Benefits Advisor at (866) 444-3272 before filing this form.
To Use the Model or Not to Use the Model?
Plans must decide whether to use these newly issued DOL models or to proceed with individually designed notices and forms. This decision depends in part on how tailored the plan’s existing forms are to an employer’s population and how closely they parallel the required information in the model notices. Except for the addition of information pertaining to ARRA and the COBRA premium assistance, the model notices are very similar to the model COBRA notices issued by the DOL in 2004. If your current COBRA materials are based on the old models, you may want to use the new models, but update them with changes that are similar to the changes you made in the old models. For example, the new “full version” model does not contain information about how COBRA applies to health care flexible spending accounts. If you offer health care flexible spending accounts and wish to use the model notice, you must be sure to add similar language to that in existing notices. At the very least, existing notices and forms may need to be revised to reflect the clarification of some of the items discussed above.