- ARRA amends the Internal Revenue Code and ERISA to provide a subsidy of 65% of COBRA premiums for up to 9 months for COBRA qualified beneficiaries with respect to whom the COBRA qualifying event is "involuntary loss of employment" occurring in the period beginning September 1, 2008 and ending December 31, 2009.
- "COBRA continuation coverage" is defined to include coverage under State "mini-COBRA laws" so the subsidy is also available to employees of employers having fewer than 20 employees in States that have adopted "mini-COBRA laws."
- Responsibility for administering the subsidy is placed largely upon the person to whom premiums are paid (or treated as being paid). That person is required to deem the payment of 35% of COBRA premiums by “assistance eligible individuals” to be payment of those premiums in full and is permitted to recoup the 65% subsidy of premium payments by offset to payroll tax obligations (including FICA and federal income tax withholdings and employer FICA).
- The “person to whom premiums are paid” is treated as
· the plan (in the case of multiemployer plans),
· the employer (in the case of single employer plans that are subject to COBRA or that are wholly or partially self-insured), or
· the insurer (in the case of all other plans). - Notice of the right to ARRA premium assistance must be given by the plan administrator to assistance eligible individuals:
· within 44 days of the COBRA qualifying event in the case of events occurring after the date of ARRA’s enactment (February 17, 2009) and
· within 60 days of the date of ARRA’s enactment, for COBRA qualifying events occurring on or before that date (but not before September 1, 2008) if there is no COBRA election in place on the date of ARRA’s enactment. - An extended COBRA election period is available for assistance eligible individuals not on COBRA as of ARRA’s enactment date (the period begins on the date that such individuals are given notice of their eligibility for COBRA assistance and ends 60 days later); and special rules apply to employees and employers in “mirrored tax” jurisdictions (e.g., Guam--the COBRA assistance provisions are not treated as provisions of the "mirror tax code" so that payroll tax payments to the taxing authority of those jurisdictions are not reduced).
- Eligibility for COBRA premium assistance begins to phase out at $125,000 AGI for single filers and $250,000 AGI for joint filers, and is completely eliminated at $145,000 AGI for single filers and $290,000 AGI for joint filers. Any excess COBRA premium assistance paid to such filers is recaptured by an increase to their taxes by the amount of the excess.
- Expedited review by the Secretary of Labor is required of applications by COBRA qualified beneficiaries to be treated as “assistance eligible individuals” in cases in which such treatment has been denied them. The Secretary of Labor must act upon such applications within 15 business days.
- The Secretary of Labor is required to provide model notices within 30 days of the date of enactment of ARRA and is also required to provide forms and procedures for implementing the review requirement.
Open issues include the following:
ARRA does not provide a definition of "involuntary termination." Does voluntary termination for “good reason” count as “involuntary termination”? Does participation in a voluntary severance program or early retirement program count as “involuntary termination”?
Must notice of the right to ARRA premium subsidies be given to assistance eligible individuals whose COBRA qualifying event occurred on or prior to February 17, 2009 but who did elect COBRA by February 17, 2009? Presumably, the answer is, yes, both to comply with the letter of ARRA and to give notice to existing assistance eligible individuals of their right to COBRA premium reduction under ARRA. But what is the date by which such notice must be given? 44 days after February 17, 2009? 60 days?
Where the premium collector is the employer, the plan is fully insured, and COBRA qualified beneficiaries make premium payments directly to the insurer, is the employer required to pay over the subsidized amount to the insurer? How does the employer know whether the COBRA qualified beneficiaries have made any payment to the insurer, or how much of a payment has been made? When must the subsidized amount be paid? Is the employer entitled to be billed by the insurer?
What is the procedure where an assistance eligible individual and an employer disagree about the individual’s right to ARRA premium assistance? Does the employer’s failure to deem payment of 35% of the COBRA premium as payment in full count as a benefit denial that is immediately appealable to the Secretary of Labor under the expedited review procedure required by ARRA? Or must the individual first exhaust the plan’s claims procedures? Is the individual required to pay the full premium amount during the pendency of the application? Or, in the case of a fully insured plan, is the employer required to continue to pay over the subsidized amount to the insurer? What about the case in which the individual has not yet become a COBRA qualified beneficiary and has been denied the right to an extended election period?
Bottom line:
· The intent of ARRA’s COBRA premium assistance provisions and the general manner in which the assistance is supposed to work are clear, but significant issues remain to be worked out. In particular, there are open issues of coordination among assistance eligible individuals, employers, insurers, and the Departments of Labor and Treasury.
· Outreach efforts by the Secretary of Labor, in consultation with the Secretaries of the Treasury and Health and Human Services, are required to be made to employers, group health plan administrators, public assistance programs, States, insurers, and other entities.
I've done a Memo on the COBRA assistance provisions of ARRA. Email me for a copy. See here for text of the American Recovery and Reinvestment Act (press, "Continue to GPO Site" and then press "Open").
John, February 19, 2009
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