An Overview of COBRA and State Continuation Assistance Under The American Recovery and Reinvestment Act of 2009

What is the Premium Subsidy?

While the debate over long-ranging health care reform in the United States heats up in Washington, thousands of Americans laid off in recent months are scrambling for options to maintain their insurance coverage.  Many are not aware of the subsidies passed in February by Congress as part of the stimulus package to help recently laid-off workers maintain their employer-based coverage.   We’ll address the larger issue of health care reform at another time.  For now, here’s a crack at a basic overview of the COBRA subsidy available to Americans that have been laid off in the past 9 months or that will lose their jobs in 2009.

Under the American Recovery and Reinvestment Act of 2009 (ARRA), eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit.  This premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and last for up to nine months for those eligible for COBRA between September 1, 2008 and December 31, 2009.   In states such as Texas, where state “min-COBRA” or state continuation programs exist for employers whose groups contain less than 20 employees, the subsidy also applies for the length of continuation for that state’s program to a maximum of nine months.  In the case of Texas, that period is six months.)

On the whole, the COBRA premium subsidy provides sorely needed short-term relief for people most directly impacted by the economic downturn- if they know about it.  These provisions, like the entire stimulus package, were written hastily.  They place quite an administrative burden on employers, regulators, and carriers.  It took months to get decent model notices and guidelines in place.  As a result, many employers have done a poor job of making laid off workers aware of the provisions.  As an insurance broker, I find myself convincing such individuals that I should not be selling them an individual policy as an alternative to COBRA before they verify whether they are eligible for the subsidy.  The majority of people that come to us are unaware of the program.

Who is Eligible?

Anyone that was involuntarily terminated, became eligible for COBRA between September 2008 and the end of 2009, and elected COBRA is eligible for the premium subsidy to be applied to premiums on or after February 17, 2009.  Employers subject to COBRA were required to give all employees that became eligible since September 2008 but waived COBRA another chance to enroll in COBRA with the subsidy starting March 2009.  For the purposes of HIPAA and pre-existing condition waiting periods or exclusions, the amount of time such a second chance COBRA enrollee went without coverage before joining COBRA does not count against them.  

Even if the employee initiated the termination, it still might be considered “involuntary” and eligible for the subsidy.   According to the IRS notice on eligibility, this is the case “if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee.”  In other words, if you quit because you were about to be laid off, you might still be eligible.

Who is Not Eligible?

The Department of Labor states, “those who are eligible for other group health coverage (such as a spouse's plan) or Medicare are not eligible for the premium reduction.”  Moreover, for those individuals with modified adjusted gross income of $145,000 or more ($290,000 for those married and filing jointly), any subsidy received will have to be paid back to the IRS in full.  For those individuals with modified adjusted gross income between $125,000 and $145,000 ($250,000 and $290,000 for those married and filing jointly), the amount of premium to be repaid to the IRS is prorated.
 

Denials

In some cases, employees have been denied the ARRA COBRA Subsidy.  One major employer in Texas has denied the COBRA subsidy to terminated employees over the age of 50 on the grounds that they had access to other group plans and waived those options.  The employees had been offered and waived out of special retiree benefits plans in favor of COBRA on their regular employee plans.  The retiree benefit plans, ironically, were far more expensive than COBRA for such terminated employees.  It could be argued that denying such employees access to the subsidy runs contrary to the spirit of the law.   In plain English, it’s kicking older laid off employees while they’re down.  Employers have been encouraged by officials to err on the side of the employees when in doubt, and there could be legal challenges in cases such as this.  

For individuals who are denied the subsidy, there is recourse through the Department of Labor.  According to DOL, such individuals “who are denied treatment as assistance eligible individuals and thus are denied eligibility for the premium reduction (whether by their plan, employer or insurer) may request an expedited review of the denial by the U.S. Department of Labor. The Department must make a determination within 15 business days of receipt of a completed request for review.”    

What Plans are Subject to the Premium Subsidy?
The COBRA premium reduction provisions apply to:

• All group health plans sponsored by private-sector employers or employee organizations (unions) subject to the COBRA rules under the Employee Retirement Income Security Act of 1974 (ERISA)
• Vision-only, dental-only, and “mini-med” plans offered by employers subject to COBRA rules under ERISA
• Plans sponsored by State or local governments subject to the continuation provisions under the Public Health Service Act
•  Plans in the Federal Employee Health Benefits Program (FEHBP)
• Group health insurance plans that are required by State law to provide comparable continuation coverage (such as “mini-COBRA”)

What Should You Do if You’ve Been Laid Off?

If you’ve been involuntarily terminated from your job, first be sure that your employer has provided you with notices and election packets for COBRA.  In the case of employers with fewer than 20 employees in states such as Texas, look for state continuation packets.  If there is no mention of the premium subsidy in your notice, contact your former employer to find out why.  If you’ve been denied the subsidy, remember that you can request a quick review by the Department of Labor.

Alternatives to COBRA and State Continuation

If you don’t qualify for the subsidy, you cannot afford the subsidized COBRA/continuation premiums, or you’ve run through the full subsidy period, there are other options out there for health insurance and other lines of coverage.  After the full run of allotted time on COBRA, people in states such as Texas can often apply for state continuation if they still have no access to another group plan.  If COBRA or state continuation rates are too expensive, you can also explore a spouse’s group or individual plan, individual health insurance, or temporary health insurance.  In cases where one cannot qualify for any group or individual plan, many states offer state risk pools as a carrier of last resort.  Consult a qualified insurance agent for advice on all your options.

What Do Employers Need to Know?

Plan administrators must provide notice of the premium subsidy to all individuals with a COBRA qualifying event between September 1, 2008 and December 31, 2009.   They can provide this notice separately or along with their standard COBRA forms.  Employers were required by mid-April to provide notice and a special election period to those whose qualifying event happened before ARRA was passed.

In the case of employers of firms with fewer than 20 employees in states such as Texas that have state continuation programs, employers are only required to provide notice for employees whose qualifying events occur on or after February 17, 2009. The Department of Labor has posted model notices for employers.

Employers have the option but not the obligation to allow eligible individuals to select a lower cost plan alternative to their existing plan if there is one at the time of enrollment in COBRA or State Continuation.

Documentation and Filing Requirements for Employers Subject to COBRA Rules

Employers subject to COBRA rules(or the companies hired to administer COBRA for them) are required to pay the 65% subsidy for eligible participants.  On a quarterly basis, these employers can file for reimbursement through their quarterly federal tax return.    Although employers do not have to file anything else with the IRS for reimbursement on subsidies paid by the employer, it is important that they keep the following information on file to support the claims made on their tax reports:
    •    Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35% share of the premium
    •    In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA
    •    In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals
    •    Attestation of involuntary termination, including the date of the involuntary termination (which must be during the period from Sept. 1, 2008, to Dec. 31, 2009), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy
    •    Proof of each assistance eligible individual’s eligibility for COBRA coverage at any time during the period from Sept. 1, 2008, to Dec. 31, 2009, and election of COBRA coverage
    •    A record of the SSN’s of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.

Documentation Requirements for Employers Subject to State Continuation Rules

For employers with 19 or less employees on their employer sponsored health plans, requirements are slightly different.  In states where state continuation or “mini-COBRA” provisions exist, insurance carriers have generally agreed to pay the 65% continuation premium subsidy for eligible participants and file for credit with their quarterly tax reports.  Employers, however, are being required to provide notice to eligible terminated employees as well as documentation on participating individuals to the carriers (see the list above for examples of the information carriers need).  Carriers are currently checking to be sure whether certain small employers with close to 20 employees are subject to COBRA or State Continuation rules.   Small employers should consult their carrier or agent for information on their carrier’s specific requirements.

Penalties for Non-Compliance

Employers subject to COBRA rules face the same penalties for non-compliance with the new subsidy provisions as with other COBRA rules- up to $100 per employee per date of non-compliance.  It is not as clear what, if any, penalties exist for non-compliance on the part of employers subject to state continuation rules in various states.  ARRA does not apply to individual states’ rules, so each state is on its own to draft and enforce rules on the matter.
 

Helpful Links

Department of Labor’s resource site for COBRA Continuation under ARRA for fact sheets, FAQs, and Model Notices:
http://www.dol.gov/ebsa/cobra.html

National Association of Health Underwriters’ Advocacy Page with ARRA Info:
http://www.nahu.org/legislative/COBRA/index.cfm

IRS Bulletin 2009-27 with info on ARRA COBRA Subsidy Program:
http://www.irs.gov/irb/2009-16_irb/ar09.html

IRS COBRA Health Insurance Continuation Premium Subsidy Info Page for Employers:
http://www.irs.gov/newsroom/article/0,,id=204505,00.html