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02/20/09 - COBRA Coverage Expanded by Congress
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(This law also applies to employers in Oregon with less than 20 employees) Continued health coverage under COBRA has been expanded for displaced, eligible employees as part of the “Stimulus Bill” signed into law on February 17th. The law becomes effective March 1, 2009, but is retroactive to cover employees who were involuntarily terminated beginning September 1, 2008. The $21 billion portion of the bill expanding COBRA continuation rights will cover employees who are involuntarily terminated prior to December 31, 2009, unless such termination was due to “gross misconduct” as defined by COBRA. The new federal law requires employers with 20 or more employees to now contact eligible former employees who previously declined COBRA coverage and offer them a new 60-day period to determine whether they want to elect COBRA coverage. HOWEVER, because Oregon has a comparable state law which covers employers with less than 20 employees, the requirements also applies to Oregon’s small (less than 20 employees) organizations [ARRA Title III Sec. 3001 (10) (B) Cobra Continuation Coverage]. This new COBRA election notice will offer coverage at a reduced health premium as the employer initially subsidizes the expense of the COBRA premium. The good news for employers is that reimbursement for the COBRA premium subsidy is available as an offset or credit on the periodically filed Form 941. This credit can be sought once the premium is paid, as there is no advance credit for anticipated or scheduled COBRA premium expenses. The initial subsidy by the employer will be 65% of the employee’s COBRA premium. Under the new law, the subsidy must be offered until: - 9 months from the date on which the employer began providing the subsidy;
- The date that the former employee is eligible for alternate health coverage;
- The date on which the COBRA coverage period expires; or,
- The date on which the individual fails to pay his or her 35% portion of the health care insurance premium.
To receive reimbursement for the expense of this subsidy, the employer will be required to include certain information with Form 941: - An attestation from the employer that the employees receiving the subsidy were involuntarily terminated;
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The amount of the offset;
- A list of scheduled or anticipated amounts for future periods;
- The tax identification numbers of the individuals for whom the credit is requested; and,
- Whether the coverage was for an individual or family.
Employers may find it more efficient to file a Form 941c to receive the tax credit. Eligible former employees who previously elected COBRA coverage do not need to make a new election, but need to receive notice of their premium reduction and then start receiving the subsidy provided by the bill. Those displaced employees already on COBRA between September 1, 2008 and March 1, 2009, will not receive any reimbursement for health care expenses already incurred and coverage is not retroactive. At the employer’s discretion, employees may choose other coverage options, including options with a lower premium than what the beneficiary currently pays in COBRA coverage or paid at the time of termination. However, a 90-day election period must be given by the employer to individuals if the employer chooses to provide a lower coverage option.The 18 month coverage period currently provided by COBRA for a qualifying individual remains unchanged. But the new law does provide certain coverage rights under HIPAA for any period since September 1, 2008 when a person did not have coverage, resulting in preexisting conditions not being excluded. The law does exclude individuals who earn more than $125,000 in the year during which they seek premium assistance, but the employer is not required to verify earnings and there is no penalty for receiving tax credit for such an individual. It’s important that employers take steps now since the law will be effective and retroactive so quickly. The first step for employers is to modify their COBRA notification process. Because the COBRA subsidy is currently for a limited period, organizations may want to simply add or attach an insert to their COBRA notification forms rather than modify the entire form. In addition, former employees currently on COBRA should be notified in writing of the reduced premium that will be taking effect. Include eligibility limitations in the communication to former employees. Employers should review their layoff and termination actions since September 1, 2008 to determine any direct notification requirements for eligible former employees who initially declined COBRA. A second step is for employers facing a reduction in force or considering a severance plan to assess how to best take advantage of the COBRA tax credit. The 2% administrative fee can still be charged and it does not appear the subsidy is calculated using that fee. (And remember: for Oregon employers, the first six months of coverage for employers with less than 20 employees cannot include that extra 2%.) The expense of COBRA premiums needs to be closely tracked so that tax credit can be obtained. This tracking will be beneficial to an employer seeking future subsidy credit, as well as pursuing credit for past subsidy expenses.
HR Answers, Inc. is developing an information packet on communicating the COBRA change to employees laid off between September 1, 2008 and December 31, 2009. While this packet will provide information on the changes contained in the Stimulus Bill, it is important that employers assure that their COBRA obligations are being met. A proactive step for employers is to contact their health insurance broker or provider, or outside COBRA service provider, to confirm that the new COBRA requirements are being met.
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