Preliminary Steps for CUs on the New COBRA Subsidy Requirements
The COBRA subsidy has many moving parts. One of the key elements is it applied to "assistance eligible individuals." To be considered AEI, one must be a qualified beneficiary for COBRA (and potentially state continuation) who was involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009.
Additionally, it contains a special election period for those who would be an AEI but weren't on COBRA as of Feb. 17, 2009 (e.g., initially waived or lost coverage). A 65% COBRA premium reduction from the recipient's required monthly payment is also provided for. It applies for up to nine months.
The subsidy does not apply to the portion of COBRA premium paid for by employer, if any. It is lost as soon as the individual becomes eligible for other coverage. The recipient must notify the plan provider in writing or be subject to a 110% penalty.
Employers also have the option of allowing AEIs to enroll in a different plan if it is less expensive and also offered to active employees.
The new law adds a level of complexity to an already complex COBRA landscape. Further guidance is on the way from government agencies-keep up to date at www.dol.gov.
Meanwhile, here are nine preliminary steps you should take now:
1. Identify whether the subsidy applies to any of your plans. The subsidy applies to any COBRA eligible plan (with one exception), and any comparable state program, including medical, dental, vision, certain employee assistance programs and certain health reimbursement arrangements. The subsidy does not apply to a health flexible spending account (cafeteria plan).
2. Identify any employee who became eligible for COBRA since Sept. 1, 2008.
3. If you outsource COBRA notice requirements, contact the third party ASAP to determine:
Which ARRA requirements they will provide under your contract.
Any additional services they will provide.
Whether ARRA requirements will affect their fees.
Specifically, what do they need from you to fulfill their duties, and what will your credit union need to handle.
4. If you offer an alternative plan (it must be less expensive) that a qualified beneficiary could elect, determine whether you'll make that option available to AEIs.
5. Calculate the amount of premium the employee must pay after applying the subsidy (unless this function is outsourced).
If qualified beneficiaries pay all 102% of the premium, their portion = [(premium x 2 percent) x 35%].
If you already pay a portion of the COBRA premium, the qualified beneficiary's portion = [(COBRA premium x (percentage paid by credit union)) x 35%].
6. Determine which of the four Department of Labor model notices you need to send, and customize the letters as appropriate (unless outsourced).
The model notices are available at www.dol.gov/ebsa/COBRAmodelnotice.html.
7. Confirm with your payroll provider how to report/reimburse the subsidy.
The 65% subsidy is initially paid by the credit union (assuming a single-employer plan subject to federal COBRA). The subsidy amount is then reimbursed through a payroll tax credit (and potentially a cash reimbursement if the subsidy exceeds the payroll tax credit).
8. Establish a process to reconcile IRS Form 941 to report subsidies to be reimbursed to the credit union.
9. Review internal policies to see if they're affected by the ARRA subsidy.
For example, if your credit union offers continued health coverage in a severance package, the subsidy could be affected by how the coverage is offered or labeled.
You'll need more information to prepare for the ARRA subsidy. This is a very general overview, and not intended as legal advice-COBRA issues are complicated, and you should consult your attorney on specific steps required by your credit union's situation.
If your credit union is subject to state continuation laws rather than COBRA, ask your insurer to provide information regarding any additional notices you may need to send former plan participants regarding the federal subsidy. Confirm with the insurer whether any former plan participants will gain an additional election period.
The Department of Labor has published four sample notices to provide to those who potentially qualify for the 65% subsidy in COBRA premiums. Consult an attorney regarding your credit union's specific situation. The full version of the general notice provides COBRA-required election as well as the ARRA subsidy information. Provide this notice to qualified beneficiaries whose qualifying event is between Sept. 1, 2008, and Dec. 31, 2009, and who either did not yet get an election notice or will receive the notice after Feb. 17, 2009.
The abbreviated version of the general notice provides only the ARRA subsidy related information. This goes to a qualified beneficiary whose qualifying event is between Sept. 1, 2008 and the present, and who has already elected-and is still on-COBRA, but whose election notice did not contain ARRA subsidy information.
Information regarding a potential "second-chance" to elect COBRA is provided in the notice in connection with extended election periods. Provide this notice to any assistance-eligible individual who had a qualifying event between Sept. 1, 2008, and Feb. 16, 2009, who did not originally elect COBRA coverage when eligible, or did elect it but are no longer covered (e.g., terminated from coverage due to lack of premium payment). Note: this is the only notice with a set deadline, April 18, 2009, for distribution.
All other notices default to normal COBRA notice timeframe/delivery rules, which are not met until the ARRA subsidy information is provided.
An alternative general notice is also used for state law continuation. All of the letters are available at www.dol.gov/ebsa/COBRAmodelnotice.html.
Brad Pricer is a brokerage sales and retention manager for CUNA Mutual Group. He can be reached at 800-356-2644, ext. 6786 or firstname.lastname@example.org