December 29, 2009 - ALERT – COBRA Premium Subsidy Extended: Hitesman & Wold, P.A. News & Events

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December 29, 2009 - If at first you don’t succeed, try, try again:
COBRA Premium Subsidy Extended

The Department of Defense Appropriations Act of 2010 (the “DOD Act”), passed by Congress and signed into law by the President, includes amendments to the COBRA premium subsidy provisions of the American Recovery and Reinvestment Act of 2009 (“ARRA”). The DOD Act builds upon ARRA. For a more detailed discussion of ARRA (e.g., definition of assistance eligible individual, description of subsidy, etc.), see our Alert dated February 23, 2009: http://www.hitesmanlaw.com/news_events/alert_090223.shtml).

THE CHANGES ARE EFFECTIVE NOW.

Changes To ARRA’s COBRA Premium Subsidy

In general, ARRA provides certain individuals who have lost health coverage due to an involuntarily termination of employment with an opportunity to continue health coverage at a much reduced (i.e., subsidized) rate. The DOD Act amends the following key areas regarding the ARRA COBRA premium subsidy:

Eligibility Extended. The DOD Act extends the subsidy eligibility period end date from December 31, 2009 to February 28, 2010. Now, in order to be considered eligible for the premium subsidy, a person must have experienced an involuntary termination of employment (1) on or after September 1, 2008, and (2) on or before February 28, 2010 (hereafter referred to as the “premium subsidy eligibility period”).

Operational Issue: Some people may have been notified they are not eligible for the premium subsidy (e.g., those who terminated employment during December of 2009 but had coverage through the last day of the month). Under the DOD Act, this may no longer be the case. See Immediate Action Items below.

Eligibility Clarification. The DOD Act also “clarifies” that eligibility for the premium subsidy depends on when the qualifying event occurs (i.e., the termination of employment), not when the individual becomes eligible for (i.e., actually covered under) COBRA continuation coverage.

Prior to the clarification, both the qualifying event (i.e., the termination of employment) and the loss triggering eligibility for COBRA needed to occur within the premium subsidy eligibility period. For example, Tom was involuntarily terminated on October 15, 2009. As part of a severance package, the employer provided three (3) months of paid coverage, followed by full COBRA (i.e., the COBRA was not coordinated with the three (3) months of coverage provided as part of the severance package). Although the termination of employment occurred prior to December 31, 2009, the loss of coverage would not occur until January 15, 2010; after the December 31, 2009 premium subsidy eligibility period end date. Prior to the clarification, Tom would not have been eligible for the premium subsidy. Pursuant to the DOD Act clarification, the focal point is just the termination of employment, not the timing of the subsequent loss of coverage. Tom would be eligible for the premium subsidy.

Operational Issue: It is very likely people who had a qualifying event within the premium subsidy eligibility period, but not the associated loss of coverage, were informed there was no subsidy available. Under the DOD Act, this is no longer the case. See Immediate Action Items below.

Duration of Subsidy Extended. The DOD Act lengthens the maximum duration of the premium subsidy from nine (9) months to fifteen (15) months.

Operational Issue: It is very likely people who have been receiving the subsidy have been informed that only nine (9) months of subsidy is available. In addition, some people will have been informed that no more subsidy is available because nine (9) months has expired. Under the DOD Act, this may no longer be the case. See Immediate Action Items below.

Retroactive Election, Reinstatement & Rebate. Because the extensions and clarifications of the DOD Act reach backwards as well as forwards, there are transitional populations that need to be addressed. For example:

A person may not have been provided information about the subsidy because under the law at that time, he or she was not eligible for the subsidy;

A person may have dropped COBRA after exhaustion of the nine (9) months of subsidy because he or she could not afford COBRA on an unsubsidized basis; or

A person may have paid the full COBRA premium after the nine (9) months of subsidy.

In these situations, the DOD Act provides an opportunity for individuals to put themselves in the same position in which they would have been had the subsidy terms under the DOD Act been part of ARRA from the outset. In general, the DOD Act contains transition rules intended to accomplish this result.

The DOD Act allows assistance eligible individuals who previously exhausted the nine (9) months of subsidy and then dropped continuation coverage to reinstate the continuation coverage upon timely payment of the back premiums at the subsidized premium rate.

The DOD Act entitles assistance eligible individuals who previously exhausted the nine (9) months of subsidy and continued continuation coverage at the unsubsidized rate to a rebate or credit towards future continuation premiums.

And under limited circumstances, the DOD Act may even allow people who were not considered assistance eligible individuals (e.g., because the loss of coverage occurred after the end of the premium subsidy eligibility period) to retroactively elect continuation coverage as an assistance eligible individual upon timely payment of back premiums at the subsidized premium rate.

Operational Issues: Many people on continuation coverage, who have dropped continuation coverage, or who never elected continuation coverage, will not know the DOD Act provides these opportunities for retroactive election, reinstatement, and rebate. See Immediate Action Items below.

Notification (and Re-Notification) Requirements. In general, the DOD Act requires COBRA notifications for qualifying events occurring on or after October 31, 2009, to include the DOD Act information. This may involve providing additional or corrective notification to those who already received COBRA notifications without the DOD Act information. The DOD Act also requires that notification reflecting the DOD Act information be provided to all persons who were assistance eligible individuals on or after October 31, 2009. Again, this may involve providing additional or corrective notification to those who already received COBRA notifications without the DOD Act information. For more information regarding the notifications and their deadlines, see http://www.dol.gov/ebsa/newsroom/fsCOBRApremiumreduction.html.

Operational Issue: For those who have already received COBRA information, they must receive updated information. For those who have not yet received COBRA information, the information should be updated for the DOD Act at the time provided.

Impact on Minnesota COBRA Premium Subsidy

The extension of the COBRA premium subsidy under DOD Act also extends eligibility for the Minnesota premium subsidy available for certain low income individuals, as described in our Alert dated July 22, 2009: http://www.hitesmanlaw.com/news_events/alert_090723.shtml. The Minnesota law bases eligibility for, and the length of, the Minnesota premium subsidy on eligibility for, and the length of, the premium subsidy under ARRA. Because the DOD Act amends ARRA, the extensions available under the DOD Act automatically are available with respect to the Minnesota premium subsidy.

Operational Issue: Depending upon the type of notification previously provided regarding the Minnesota premium subsidy, accurate additional information may need to be provided.

Remember: Minnesota’s subsidy requirement applies to all group health plans subject to Minnesota continuation requirements, including group health plans not otherwise subject to COBRA (e.g., plans of small employers with less than twenty (20) employees in the preceding calendar year).

Immediate Action Items

In light of the changes to the COBRA premium subsidy law (including the impact on the Minnesota state premium subsidy law), employers sponsoring group health plans (and/or the third party administrators providing continuation services) should immediately consider the following actions:

Regarding persons currently on continuation coverage, identify:

Those who have been notified they were not eligible for the subsidy because the loss of coverage would occur after December 31, 2009, but elected/maintained the continuation coverage on an unsubsidized basis. [Note: As a result of the clarification under the DOD Act, these persons may have overpaid the continuation premium.]

Those that have been notified of a prospective increase in the cost of continuation coverage due to no further subsidy (e.g., exhaustion of nine (9) months of subsidy under ARRA).

Those that have previously experienced an increase in the cost of continuation coverage due to no further subsidy (e.g., exhaustion of nine (9) months of subsidy under ARRA) but maintained the continuation coverage on an unsubsidized basis. [Note: As a result of the extensions under the DOD Act, these persons may have overpaid the continuation premium.]

Those who have received continuation information regarding ARRA (e.g., premium subsidy available for nine (9) months) that due to the DOD Act is now inaccurate (e.g., premium subsidy available for fifteen (15) months).

Action Item: Prior to February 17, 2010, provide accurate information regarding the DOD Act changes, the changes to their status, elections, reinstatement, and rebate rights.

Suggestion: Provide the updated information as soon as possible rather than waiting until the end of the sixty (60) day notification period. Alternatively, consider an immediate informal communication to alert impacted persons of the changes followed by the official communication within the sixty (60) day notification period.

Regarding persons who experienced an involuntary termination on or after September 1, 2008, but who are not currently on continuation coverage, identify:

Those who were notified that they were not eligible for the subsidy because the loss of coverage occurred (or would occur) after December 31, 2009 and did not elect continuation coverage.

Those notified of an increase in the cost of continuation coverage due to no further subsidy (e.g., exhaustion of nine (9) months of subsidy) and subsequently dropped continuation coverage coincident with the expiration of the premium subsidy.

Those who received continuation information regarding ARRA (e.g., premium subsidy available for nine (9) months) that due to the DOD Act is now inaccurate (e.g., premium subsidy available for fifteen (15) months).

Action Item: Prior to February 17, 2010, provide accurate information regarding the DOD Act changes, the changes to their status, elections, reinstatement, and rebate rights.

Regarding those who have not yet received continuation coverage information.

Action Item: Review and revise all notifications to be used in the future and provide within the normal COBRA timeframes.

In general, make arrangements to implement continuation coverage changes, including:

arrangements to provide a refund of continuation premiums to assistance eligible individuals who have been paying full continuation premiums since the nine (9) months subsidy was exhausted.

arrangements to reinstate coverage for assistance eligible individuals whose continuation coverage was terminated due to non-payment of the full continuation premium after they had exhausted the premium subsidy, if they pay the retroactive subsidized premiums.

WARNING: Watch for additional changes in early 2010. The House separately passed the Jobs for Main Street Act which, among other things, would further extend the subsidy through June 30, 2010, and extend the subsidy to certain reductions in hours qualifying events. The Senate is expected to consider it in early 2010.

Please contact us if you have any questions regarding the requirements, or if you need our assistance with any of the foregoing action items.

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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.