client seminar april 9 2009 american recovery reinvestment act of 2009 cobra premium assistance law l.
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CLIENT SEMINAR APRIL 9, 2009 American Recovery & Reinvestment Act of 2009 - COBRA Premium Assistance Law Lisa Carlson, Director of Planning & Regulation Today’s Discussion History Health Plan Responsibilities Employer Responsibilities Member Responsibilities

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client seminar april 9 2009 american recovery reinvestment act of 2009 cobra premium assistance law

CLIENT SEMINAR APRIL 9, 2009American Recovery & Reinvestment Act of 2009 - COBRA Premium Assistance Law

Lisa Carlson, Director of Planning & Regulation

today s discussion
Today’s Discussion


Health Plan Responsibilities

Employer Responsibilities

Member Responsibilities

COBRA Premium Assistance -How much & for how long?

How to apply for the Tax Credit

Brendan Reilly - Davenport, Evans, Hurwitz & Smith, L.L.P.



American Recovery & Reinvestment Act of 2009

  • Addresses economic turmoil
  • Increased layoffs = increased uninsured
  • How can we help Americans keep their health insurance coverage?


the new law
The New Law

Helps individuals pay their COBRA premiums

Effective February 17, 2009

COBRA Premium Assistance starts March 1, 2009

However, eligibility is retroactive back to Sept 1, 2008

Timing is everything!


who s eligible
Who’s eligible?

Assistance Eligible Individual (AEI) is a COBRA qualified beneficiary who meets all criteria:

Is eligible for COBRA between Sept. 1, 2008 through Dec. 31, 2009;

Elects COBRA; and

Has a QE of “involuntary termination” of employment during this period.


eligibility period
Eligibility Period

Both the involuntary termination and the beginning of COBRA eligibility must occur within this period (in blue).


who s eligible8
Who’s eligible?

What’s an involuntary termination?

Employer-initiated termination of employment

Termination for cause (poor performance, attendance issues, subordination)

Exception for gross misconduct

Lay-off period with a right of recall or a temporary furlough period

However, it also includes a “material negative change” in the employment relationship


who s eligible9
Who’s eligible?

“Material negative change” in the employment relationship:

Reduction in hours causing loss of benefits/loss in pay

Resignation precluding a layoff

Early or forced retirement

Change in geographic location of employment

Termination in exchange for a severance package


who s eligible10
Who’s eligible?

“The determination of whether a termination is involuntary is based on all the facts and circumstances.”

- IRS Notice 2009-27


who s eligible11
Who’s eligible?

Involuntary termination does NOT include:


Dependent child aging out of eligibility

Death of employee

Absence from work due to illness or disability

Termination for gross misconduct

Employee-initiated strike


who s eligible12
Who’s eligible?

Exception for High-Income Individuals

Income exceeds $125,000 single ($250,000 for joint filers)

Can waive assistance

If you don’t waive assistance, the IRS will recapture premium assistance through an increase in your income tax liability for the year

Employer and insurer NOT responsible for determining income thresholds


who s eligible13
Who’s eligible?

High-Income Individuals

WARNING: Waiving COBRA premium assistance is permanent

Once you waive assistance, you can’t receive premium assistance for future COBRA periods in 2009 or 2010, regardless of your change in income after losing your job!


the new law14
The New Law

Eligible plans





State continuation plans


Retiree health plans (if it doesn’t differ from active employee benefit plan)

Subsidy is available even if there’s no employer contribution


the new law15
The New Law

Plans NOT eligible for the subsidy:

Flex Plan under Section 125


Church Plans under Code § 501

Indian Tribal Plans

Conversion Plans

Medicaid or CHIP


health plan responsibilities17
Health Plan Responsibilities

Send out Member Notification (Model Notices)

Receive & process Member Election Forms

Report Member elections to employer to verify involuntary termination

Send out new COBRA payment coupon books

Receive COBRA premiums

Report receipt of COBRA premiums to employer


model notices
Model Notices

Small Group:

Employers with fewer than 20 employees

Large Group:

More than 20 employees

Subject to ERISA



member notification
Member Notification

Health Plan will send out 4 types of model notices:

General Notice (full version) – for all who had QE from Sept 1, 2008 – Dec 31, 2009 (regardless of type of QE).

Includes COBRA election form and premium assistance election form.

General Notice (abbreviated) – for anyone who had a QE from Sept 1, 2008 – Dec 31, 2009 but already elected COBRA and still have it.

Includes premium assistance election form.


member notification20
Member Notification

Health Plan will send out 4 types of model notices:

Alternative Notice – for small group continuation plans under State law

Extended/2nd Chance Election Notice – for anyone who had a QE from Sept 1, 2008 – Feb 16, 2009 and either did not elect COBRA at that time or who elected and dropped (including non-payment of premiums)

Includes small group State continuation plans

Includes COBRA election form and premium assistance election form

Members have 60 day election period


2 nd chance election
2nd Chance Election

2nd Chance/Extended Election Period

Offered to those to elected but subsequently dropped coverage (even for non-payment of premiums)

Coverage may be retroactive

Pre-ex waiting period is null and void


model notices22
Model Notices

Plan options

Can only downgrade in benefit plans, not upgrade

Premium amounts by plan type

Description of COBRA/state continuation rights

Description of COBRA Premium Assistance rights

Premium Assistance Election Form

“Other Coverage” notification form for the Health Plan


member notification23
Member Notification

We have identified and categorized these COBRA members

We’ve used Travis software for 10 years

Industry experts in automating COBRA communication and maintaining a full scale management tool for enrollment, benefit period tracking and payment reconciliation


member notification24
Member Notification

Sanford Health Plan receives COBRA election and premium assistance election forms

We will send reports to employer to verify who’s elected premium assistance

Employer HR personnel verify that termination was involuntary

Health Plan sends out new COBRA premium coupon books reflecting reduced premium amount due (35%)


member notification25
Member Notification

Sanford Health Plan receives COBRA election and premium assistance election forms

Anyone identified as not eligible for premium assistance will be sent a denial notice

Notification of expedited appeal rights to Dept. of Labor

Dept. of Labor has 15 days to make determination


member notification26
Member Notification

For Large Group or Self-Funded Plans:

Health Plan won’t bill employer until the COBRA member has paid their premium amount

Report will reflect COBRA premiums paid

Employer can apply for the credit in the quarter for which premium payment was made


member notification27
Member Notification

For Fully-Insured Small Group Plans:

Health Plan subsidizes 65% of premium

Health Plan (not employer) files for payroll credit in the quarter for which premium payment was made

We still need employer to verify involuntary terminations


employer responsibilities29

Develop administrative procedures with payroll for complying with reimbursement with the government

Develop procedures for gathering necessary information for applying for payroll credit

Notify Sanford Health Plan of any employee severance or COBRA subsidy arrangements


cobra member responsibilities31
COBRA Member Responsibilities

Notify us of address changes

Must notify the plan in writing if no longer eligible for premium assistance

Eligible for other group coverage

Eligible for Medicare

Penalty of 110% of the amount of premium reduction if they fail to notify Health Plan and continue to pay reduced COBRA premiums


how much
How much?
  • Reduces COBRA Premiums 65%
  • COBRA beneficiary pays 35%
  • Plan sponsor temporarily subsidizes 65% and receives reimbursement through payroll tax credit


how long
How long?

Premium assistance ends the earliest of:

  • The first date they become eligible for other group or Medicare coverage;
  • 9 months after the first month of coverage; or
  • Date of COBRA expiration


how long35
How long?

Becoming eligible for other group coverage

COBRA premium assistance ends the first date that other coverage can take effect

Example: Your new job has 60 day wait-period for benefits. You may continue to receive the COBRA premium reduction until the first date that coverage can take effect under your new employer group plan.


how long36
How long?

9-months of COBRA premium assistance:

May extend beyond December 31, 2009 if individuals qualify on or before this date


Involuntary termination occurs Nov. 20, 2009

COBRA elected and premium assistance starts Dec. 1, 2009

COBRA Premium assistance lasts through Aug. 31, 2010 (assuming no other coverage)


premium reimbursement
Large Group Example

COBRA premium is $1,000

Member pays $350

Employer pays $650

Federal subsidy of $650 given back to employer in form of payroll tax credit

Small Group Example

COBRA premium is $1,000

Member pays $350

Health Plan pays $650

Federal subsidy of $650 given back to Health Plan in form of payroll tax credit

Premium Reimbursement



Example 1: $1,000 mo. COBRA Premium



Example 2: $1,000 mo. COBRA Premium


premium reimbursement41
Premium Reimbursement

What if Member already paid March & April COBRA premiums?

We will provide a credit that reduces subsequent COBRA payments

We must reimburse within 60 days if it’s unrealistic that that credit will be used within 180 days


premium reimbursement42
Premium Reimbursement

What if employer subsidizes former employee’s COBRA premiums?

If a third party (e.g. relative, state agency, hospital, etc.) pays the COBRA premium on member’s behalf, the third party only has to pay the 35% (which will accurately be stated in the coupon books)

However, they cannot take credit for the subsidy - Only employers/insurers can


premium reimbursement43
Premium Reimbursement

The employer subsidy is for 65% of the individual’s COBRA premium

If an employer pays all or some of the COBRA premium, only the portion that would normally be paid by the former employee is eligible for the subsidy

Sanford Health Plan must be notified of such arrangements (i.e. severance packages or bargaining agreements) so that we’re accurately billing the member


premium reimbursement44
Premium Reimbursement

Examples: Monthly COBRA premium is $1,000

Employer pays $400 & Member pays $600

We bill the member for $210 ($600*0.35)

Employer can only claim $390 ($600*0.65) tax credit as opposed to the $650 they could’ve claimed if they didn’t subsidize the premium at all

Employer pays 100% of the COBRA Premium

We bill the member nothing (35% of zero)

Employer cannot claim anything for tax credit (65% of zero)


premium reimbursement45
Premium Reimbursement

How are premiums reimbursed?

No reimbursement until COBRA member pays reduced premium

Health Plan will coordinate this with HR through reports of paid premiums

Employer reimbursed through payroll tax credit


premium reimbursement46
Premium Reimbursement

What documentation is needed for reimbursement?

Attestation of involuntary termination

Report of:

Amount of payroll taxes off-set

TINS of all covered employees

Amount of subsidy per person

Whether coverage is for one person or more

IRS Form 941 has been revised to accommodate


For more information:
  • Department of Labor

  • IRS,,id=204505,00.html


Thank you

Lisa Carlson


Tami Haberer