Pennsylvania Labor and Employment Blog : Pennsylvania Labor and Employment Lawyer & Attorney : McNees Wallace & Nurick Law Firm : Human Resources, Workplace and Business Law : Harrisburg, Lancaster, Allentown, Lehigh

On March 3, 2010, President Obama signed the Temporary Extension Act of 2010 (.pdf) into law. The Act provides for the continuation of the extended unemployment compensation benefit program and the availability of the COBRA premium subsidy, which expired February 28, 2010. The COBRA premium assistance program was extended to allow those involuntarily terminated through March 31, 2010 to receive the 65 percent premium subsidy. More information regarding the COBRA premium subsidy was posted on our blog on January 6, 2010.

The Act also clarifies that if an individual has a COBRA qualifying event due to a reduction in hours, and is later involuntarily terminated, then the involuntary termination must be treated as a qualifying event and the employee must receive a new, appropriate COBRA notification.

Finally, the Act clarifies certain interpretative guidance, and indicates that certain portions of the Act are retroactive.

Employers and Plan Administrators should be sure to incorporate these changes into their COBRA notification procedures and COBRA notices.  

Congress is also said to be considering a bill that would extend the COBRA premium subsidy program further. 
 

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On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), which expanded health care insurance benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA). The ARRA granted individuals involuntarily terminated from employment between September 1, 2008 and December 31, 2009, a subsidy to cover 65 percent of their monthly COBRA premiums for up to nine months. The subsidy is available for individuals with an annual income of less than $125,000 (single) or $250,000 (joint filers). Individuals earning between $125,000 ($250,000 joint) and $145,000 ($290,000 joint) are eligible for "phased-in" assistance.

Under the ARRA, plan administrators are not only responsible for providing notice of the subsidy to eligible individuals, they must also pay the cost of the subsidy up front. The plan administrator may then file IRS Form 941 to claim a payroll tax credit in the amount of subsidies paid. In other words, employers must front 65 percent of eligible individuals' COBRA premiums in exchange for a credit against their payroll taxes.

UPDATE! On December 19, 2009, President Obama signed the 2010 Department of Defense Appropriations Act (Act), which extends the COBRA premium subsidy provisions and places additional notification requirements on plan administrators. The Act provides eligible individuals with an additional six months of subsidized coverage, extending the availability of the COBRA premium subsidy from nine to 15 months. The Act also allows individuals involuntarily terminated on or before February 28, 2010 to receive the subsidy, extending the original eligibility deadline of December 31, 2009, by two months. Employees involuntarily terminated in January and February 2010 will now be eligible for the subsidy.

Furthermore, if an individual was eligible for the COBRA premium assistance under the original ARRA, and that eligibility already expired, then that individual may receive the continued premium subsidy retroactively. In order to take advantage of the retroactive coverage, the individual must pay 35 percent of the premium by February 17, 2010, or within 30 days of receipt of the extension notice described below, whichever is later. If eligible individuals already have paid the full COBRA premium, then the plan administrator must either refund the over payments or credit future premium payments.

The Act also contains additional notification requirements that require plan administrators to provide eligible individuals with information regarding the extended subsidy.

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Pennsylvania's Mini-COBRA law became effective July 10, 2009. The law provides COBRA-like medical insurance continuation to employees who work for smaller business not covered by the federal law. The Department of Insurance clarified some of the coverage issues and provided a model notice for covered businesses to provide to employees. Employees who elect Mini-COBRA may also be eligible for a 65% premium assistance provided by the federal stimulus legislations. Fortunately, small business will not need to "front" the premium assistance payment because Pennsylvania's Mini-COBRA law places the obligation on the insurer.

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Effective July 10, 2009, medical insurers covering small employers in Pennsylvania will be required to offer COBRA-like continuation coverage to qualified employees and their eligible dependents. The new law covers small employers who have between two and 19 employees on a typical business day during the preceding calendar year. 

The so-called mini-COBRA coverage expands on the federal COBRA law that covers employers with at least 20 employees and allows employees who are involuntarily terminated to qualify under a federal economic stimulus law for a 65% federal subsidy of both COBRA and mini-COBRA premiums.

Like the federal law, qualifying events for coverage under the new Pennsylvania mini-COBRA are loss of group coverage due to termination of employment, death, divorce or marital separation. However, there are some key differences between the federal COBRA  and Pennsylvania’s mini-COBRA law, some of which are as follows:

• Under the Pennsylvania law, an employee or dependent must have been continuously covered by medical insurance for three months prior to termination of coverage and may not be covered or eligible for coverage under another medical plan or Medicare.
• Under the Pennsylvania law, continuation coverage must be extended for nine months; under federal COBRA law, coverage is available up to 18 months when employment is terminated and 36 months in situations involving death, divorce or legal separation.
• Under the Pennsylvania mini-COBRA law, beneficiaries can be charged a premium up to 105% of the group rate; federal COBRA beneficiaries can be charged a premium of up to 102% of the group rate.
• Pennsylvania mini-COBRA obligations apply to insurers; federal COBRA applies to employers that provide medical coverage through self-insurance or insurance products.

Employers and insurers will need to provide notices to employees and dependents of the provisions of the new law as well as their rights to elect continuation coverage upon the occurrence of a qualifying event.

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On March 31, 2009, the IRS issued a notice relating to premium assistance for COBRA continuation coverage under the American Recovery and Reinvestment Act of 2009 (ARRA). Notice 2009-27 contains many helpful clarifications on the following topics:

• INVOLUNTARY TERMINATION
• ASSISTANCE ELIGIBLE INDIVIDUAL
• CALCULATION OF PREMIUM REDUCTION
• COVERAGE ELIGIBLE FOR PREMIUM REDUCTION
• RECAPTURE OF PREMIUM ASSISTANCE
• PAYMENTS TO INSURERS UNDER FEDERAL COBRA
• COMPARABLE STATE CONTINUATION COVERAGE

The Q&A section answers many nagging questions particularly on "involuntary termination" eligibility including the following as meeting the definition:

• An involuntary termination means any severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services (this leaves in question where employees accepting a "voluntary layoff" may qualify).
• Any temporary layoff with recall rights qualifies as a termination, but a reduction in hours does not qualify. However, an employee’s voluntary termination in response to an employer-imposed reduction in hours may be an involuntary termination if the reduction in hours is a material negative change in the employment relationship for the employee.
• Any termination elected by the employee in return for a severance package.
• Any employee-initiated termination from employment constitutes an involuntary termination from employment for purposes of the premium reduction 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.

Employers should be complying with the Notice requirement of the ARRA before April 18, 2009.

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The Department of Labor Published Model Cobra Notices implementing the provisions of the American Recovery and Reinvestment Act of 2009. 

Individuals eligible for the special COBRA election period described above also must receive a notice informing them of this opportunity. This notice must be provided within 60 days following February 17, 2009. Plan administrators must provide notice about the premium reduction to individuals who have a COBRA qualifying event during the period from September 1, 2008 through December 31, 2009. Plan administrators may provide notices separately or along with notices they provide following a COBRA qualifying event. This notice must go to all individuals, whether they have COBRA coverage or not, who had a qualifying event from September 1, 2008 through December 31, 2009.

Individuals involuntarily terminated from September 1, 2008 through February 16, 2009 who did not elect COBRA when it was first offered OR who did elect COBRA, but are no longer enrolled (for example because they were unable to continue paying the premium) have a new election opportunity. This election period begins on February 17, 2009 and ends 60 days after the plan provides the required notice. This special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee's involuntary termination). COBRA coverage elected in this special election period begins with the first period of coverage beginning on or after February 17, 2009. This special election period opportunity does not apply to coverage sponsored by employers with less than 20 employees that is subject to State law.

UPDATE:  IRS Notice 2009-27 clarifies many issues related to implementation of the COBRA subsidy.

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On February 26, 2009, the Internal Revenue Service released detailed information that will help employers claim credit for the COBRA medical premiums they pay for their former employees.

Under the new law, eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35 percent of the cost of COBRA coverage.  Employers must treat the 35 percent payment by eligible former employees as full payment, but the employers are entitled to a credit for the other 65 percent of the COBRA cost on their payroll tax return.

• Employers must maintain supporting documentation for the credit claimed. This includes:
• Documentation of receipt of the employee’s 35 percent share of the premium.
• In the case of insured plans: A copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier.
• Declaration of the former employee’s involuntary termination.

The informational Release is IR-2009-15, includes an amended Form 941 and the Instructions,  together with a Q&A for Employers.  The Q&A makes the following notes on implementing and claiming the subsidy:

• The Employer may provide the subsidy (65%) and take the take the credit on its employment tax return only after it has received the 35% premium payment from then intdividual.
• The law became effective on the date of enactment, Feb. 17, 2009. However, under a transition rule, the regular premium amount may continue to be paid for up to two months after enactment (e.g., for March and April), and the subsidy can be provided retroactively.
• An employer can reduce its tax deposits or claim the credit on its quarterly return.
• An assistance-eligible individual can be any COBRA qualified beneficiary associated with the related covered employee, such as a dependent child of an employee, who is covered immediately prior to the qualifying event. The qualifying event for purposes of eligibility for the subsidy is involuntary termination of the covered employee’s employment that occurs during the period beginning Sept. 1, 2008, and ending Dec. 31, 2009. The individual must also be eligible for COBRA coverage, or similar state coverage, during this period.
• Model notices implementing the law will be issued shortly apparently by the Department of Labor.
   

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The American Recovery and Reinvestment Act has passed both the House and Senate and awaits the President's signature. The substance of the Act as it relates to COBRA continuation subsidies is as follows:

COBRA Subsidy: Eligible Employees who are involuntarily separated from employment can receive a 65% subsidy toward COBRA premiums for up to 9 months. The Eligible Employee or a third party must pay the remaining 35% of the COBRA premium. Employers cannot pay this amount. Severance agreements that offer employer-paid health continuation should be drafted to take advantage of the subsidy.

Employee Eligibility: Individuals who have been involuntarily terminated between September 1, 2008 and December 31, 2009 with annual incomes less than $125,000 (individual) or $250,000 (joint) are eligible for the COBRA premium assistance. The amount of the subsidy covers both employee and family coverage. The premium assistance is not considered income to the Eligible Employee. 

Employer/Health Plan Payroll Tax Credit: Employers or health plans (if they administer COBRA benefits) must front the COBRA subsidy amount and in exchange receive a credit against payroll taxes for the cost of the subsidy. 

Duration of Subsidy: The subsidy terminates upon offer of any new employer-sponsored health care coverage or Medicare eligibility.

Special Elections and Alternate Enrollment Options: Qualified individuals, who initially decline COBRA coverage, have an additional 60 days after they receive notice of the special election period to elect to receive the subsidy. The election period begins on the date of enactment. Group health plans may provide a special enrollment right for eligible individuals to elect different coverage under the plan in conjunction with a COBRA continuation coverage election. The alternate coverage must meet certain requirements and may not be more expensive than the original coverage.

 Notice Requirements: COBRA notices must include information on the availability of the premium assistance. Model notices from the Department of Labor will be published 30 days after enactment.

Effective Date:  The law is effective for premiums as of the first calendar month following the date of enactment.

UPDATE:  IRS Releases Information for Employers to Claim COBRA Assistance Credit on Payroll Tax Form

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