Transcript Slide 1

New COBRA Premium
Subsidy Requirements
Joel T. Kopperud
Anne E. Moran
Rhonda M. Bolton
March 11, 2009
Overview
American Recovery and Reinvestment Act
(“ARRA”)


Federal government will subsidize COBRA premiums -up to 65% of employee cost for up to 9 months
* Employer must charge 35% of COBRA premium
* Government pays subsidy through payroll tax credit
Gives eligible individuals a second chance to elect
COBRA
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Who is Eligible for COBRA subsidy?

Qualified beneficiaries who became eligible
for COBRA between September 1, 2008 and
December 31, 2009 due to involuntary
termination of employment; and

Elect COBRA
= “Assistance Eligible Individual” (AEI)
*AEIs include those eligible for mini-COBRA
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Who?


No definition of “involuntary termination”
income limits -
Phases out: >$125K (single)/$250K (joint)

Ineligible: >$145K (single)/$290K (joint)
* High income individuals can permanently waive
subsidy to avoid requirement to re-pay with
income taxes
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Who?

“Second chance” COBRA election: for those
already laid off who didn’t elect before, or
who elected and discontinued

Second chance election period: 60 days after
new notice is sent about election/subsidy
* deadline = April 18, 2009
* does not apply to mini-COBRA but states
may adopt consistent approach
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Who?
 Ineligible for subsidy




People who clearly left voluntarily
Terminated for gross misconduct
Individuals collecting Health Coverage Tax
Credit
Beneficiaries (e.g., spouses) added to
COBRA due to qualifying events after
employee was laid off
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What Is The Subsidy?
 Individual pays 35% of COBRA
premium
 Employer (or plan) pays 65% of COBRA
premium and is reimbursed through
payroll tax credit
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What?
CAUTION:
Employer
up paying
more
Example:
$1,000
premiumcan
paidend
by former
employee
“A”.
money and getting a smaller reimbursement
“A” must pay $350 under the law; employer/government
if employer is already paying part of COBRA
pays
subsidy of $650.
voluntarily
* Subsidy is calculated
based onbut
premium
amount
paid
However:
$1,000 premium
employer
hasactually
always
paid
by former employee
half. Under new law, “A” pays $175 (35% of $500),
employer pays $825 and government only reimburses $325.
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What Coverage is Eligible?


All plans subject to COBRA (e.g., medical,
vision, dental)
Includes state continuation of coverage plans
* Employer can allow option to change to core
coverage of same or lesser cost if same option
given to active employees
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When Does Subsidy Begin?
•
Starts March 1, 2009 (plans that charge
premiums monthly)
2 month ramp up – can charge employee full
amount March & April but must refund
the 65%
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When Does Subsidy End?


Max subsidy period = 9 months
Ends earlier of:



9 months after start
individual’s COBRA coverage ends
eligibility for core health coverage under
another plan, Medicare, etc.,
* individual must notify you of their eligibility for
other coverage
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How does this all work?

Paying the subsidy – the entity to whom
premiums are payable pays the subsidy and
gets reimbursed

Getting the reimbursement – through a
refundable credit on payroll taxes – Form 941
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HOW?
Reimbursement:
 IRS has new Form 941 to
facilitate crediting
 Revised Form 941 can be found
at http://www.irs.gov/pub/irspdf/f941.pdf, and the Form 941
instructions can be found at
http://www.irs.gov/pub/irs-pdf/i941.pdf
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HOW?
CAUTION: Payroll tax credit is not earned
until payment is received from employee
* Don’t claim the credit prematurely!
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To Do List:
 Need to develop a system for tracking receipt of
COBRA premium payments
 Establish/update billing system to charge individuals
only 35% of COBRA premium
 Establish system to track/recoup reimbursement of
subsidy
 Establish record of SSNs on all covered employees,
amount of subsidy reimbursed for each, and whether
subsidy was for one individual or 2 or more individuals
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HOW?

Notices: DOL will publish models by March 19, 2009 =
safe harbor

Recipients (think in terms of 4 categories):
already laid off/got a notice – need a “second chance”
election notice
2) laid off in future (post March 19, 2009) – need a
revamped COBRA notice
3) need a notice between now & March 19, 2009 – need to
send notice mentioning subsidy; be aware may need to
send another after model notice comes out
4) state COBRA
1)
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HOW?
CAUTION: “second chance” election notice
needs to go to all former employees who had
qualifying event during September 1, 2008 to
December 31, 2009 period, even if they
wouldn’t be eligible for subsidy
* deadline = April 18, 2009
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To Do List:






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
Need to develop a system for tracking receipt of COBRA premium payments
Establish/update billing system to charge individuals only 35% of COBRA
premium
Establish system to track/recoup reimbursement of subsidiary
Establish record of SSNs on all covered employees, amount of subsidy
reimbursed for each, and whether subsidy was for one individual or 2 or
more individuals
Develop list of all employees with qualifying event since
September 1, 2008
Determine which of these individuals were involuntarily
terminated (other than for gross misconduct)
Determine which currently have COBRA coverage
Determine which uncovered individuals are entitled to second
chance election
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HOW?
 Information on the receipt, including dates and amounts, of the assistance eligible individuals’
35% share of the premium;
In the case of an insured plan,Requirements:
copy of invoice or other supporting
fromto
the
 Recordkeeping
moststatement
relate
insurance carrier and proof of timely payment of the full premium to the insurance carrier

required underneeded
COBRA;
what’s
by IRS; nothing needs to be
In the case of a self-insured plan, proof of the premium amount and proof of the coverage
filed
Form
941
provided with
to the assistance
eligible
individuals;
 Attestation of involuntary termination, including the date of the involuntary termination
(which must be during the period from September 1, 2008, to December 31, 2009), for each
covered employee whose involuntary termination is the basis for eligibility for the subsidy;
* Keep records used for AEI determinations; employees
 Proof of each assistance eligible individual’s eligibility for COBRA coverage at any time
have
to expedited
appeal
of subsidy
denied
to US
during
theright
period from
September 1, 2008,
to December
31, 2009,
and election
of COBRA
coverage;
Department of Labor
 A record of the SSN’s of all covered employees, the amount of the subsidy reimbursed with
respect to each covered employee, and whether the subsidy was for 1 individual or 2 or more
individuals;
 Other documents necessary to verify the correct amount of reimbursement. (From the IRS
website)
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To Do List:










Need to develop a system for tracking receipt of COBRA premium payments
Establish/update billing system to charge individuals only 35% of COBRA premium
Establish system to track/recoup reimbursement of subsidiary
Establish record of SSNs on all covered employees, amount of subsidy reimbursed
for each, and whether subsidy was for one individual or 2 or more individuals
Develop list of all employees with qualifying event since September 1, 2008
Determine which of these individuals were involuntarily terminated (other than for
gross misconduct)
Determine which currently have COBRA coverage
Determine which uncovered individuals are entitled to be second chance election
Establish system to organize & maintain documentation to establish
subsidy eligibility, including attestations of involuntary termination
Establish system of records to document subsidy amounts, payment of
premium by employer (if applicable), premium cost, proof of coverage
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Resources:
U.S. Dept. of Labor lists a help number on its website:
1-866-444-3272
Check www.DOL.gov/COBRA for updates - subscribe to get alert
when model notices are released, and other guidance
Check www.irs.gov and go to the ARRA page for links to FAQS,
other guidance
Contact CIAB – check www.ciab.com for more information or
contact Joel Kopperud ([email protected]) with questions
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Please Note:
These slides are intended to provide only a general overview of selected issues related to
the new COBRA subsidy. They do not provide a complete analysis. The information in the
outline is for general use only and is not intended to provide specific advice or
recommendations, legal or otherwise, for any individual or organization. The information
provided herein is not intended to be and should not be construed as a legal opinion or
advice. You need to consult with your own attorney or other adviser relating to your
specific circumstances or those of any organization that you advise.
Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations,
advice (if any) relating to federal taxes that is contained in this communication (including
attachments) is not intended or written to be used, and cannot be used, for the purpose of
(1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or
recommending to another party any plan or arrangement addressed herein.
If you have any questions about these slides, feel free to contact Joel Kopperud with the
CIAB at (202) 783-4400.
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New COBRA Premium
Subsidy Requirements
Joel T. Kopperud
Anne E. Moran
Rhonda M. Bolton
March 11, 2009