Attached here is a link to an Alert our firm issued on the COBRA subsidies in the American Recovery and Reinvestment Act signed into law today. It is going to create some change to COBRA administration that require some attention very soon. It provides for a 65% employer paid subsidy for COBRA premiums for 9 months. Read the alert, then read this action plan set out below as a starting point for your company’s response to the new law.
There is a 60-day implementation window for employers, during which time we will get a model notice from the Treasury Department explaining to participants the impact of the Act and how they may be eligible for the subsidy. We also anticipate additional guidance from the IRS and Department of Labor on implementation of the subsidy and its impact on taxes and other components of COBRA administration. While we are waiting further instruction, there are some things that we recommend employers do to prepare for the final implementation of these changes.
1. Make Sure You Know Who Will Be Responsible for Preparing and Sending Notices
Within 30 days, we will be getting a model notice from the governmental agencies and that notice must be issued to plan participants and beneficiaries within 60 days of the enactment of the Act. Employers should make sure they have confirmation from their service providers as to who will take responsibility for preparing and issuing the notice. It might be the insurance company, the third-party administrator, a benefits broker or an outside COBRA administrator. It may also be that the employer or plan sponsor takes on the responsibility themselves. But be sure you have confirmation who will be preparing and sending the notices so when the 60-day window closes, the notices have been sent.
2. Know Who Is Getting the Notices
The subsidy applies to those who suffered an involuntary loss of coverage between September 1, 2008, through December 31, 2009. But the Act does not specify what it will consider an involuntary loss, and it also provides that all qualified beneficiaries, regardless of the reason for their qualifying event, must get the notice. Employers and plan sponsors should go back to September 1, 2008, and review records to determine everyone (including dependents) who had a qualifying event and confirm that these individuals will get notice. This can be for voluntary or involuntary termination or reduction of hours, but it also applies to those made eligible as a result of divorce, death or aging out of coverage. They may not get the subsidy, but you must be prepared to send them the notice.
3. Find Out How Much COBRA Coverage Costs
Find out what your plan was charging for continuation premiums from September 2008 through the present plan year. A surprising number of employers are not aware of the actual amount of COBRA premiums charged, either by their insurance company or their third-party administrator. It is impossible for a company to evaluate the actual financial impact of the 65% subsidy requirement without first knowing what underlying cost will be.
4. Find Out Who Has Actually Elected COBRA Coverage and if it has Continued
The Act includes a retroactive provision that allows those who were eligible for COBRA and did not elect. It creates a window for them to now elect continuation coverage retroactive back to the first date of the qualifying event subsequent to September 1, 2008. Even if they did not actually elected coverage when first eligible, they may now use the subsidy to elect. Some people may have already elected coverage and are continuing on. Others elected coverage and then terminated to coverage, either because they obtained new coverage or they could not carry the ongoing cost. We will get further guidance on the treatment of these individuals and the subsidy they may be due, but for an employer to prepare for the financial impact of the subsidy, it should know who has already elected and who might be entitled to a reimbursement for premiums paid as a result of the subsidy requirement.
5. Prepare for Employee Questions
At this point, employers may already be receiving questions about entitlement to the subsidy and how it will be handled. The Act specifically gives employers a transition period equal to two COBRA premiums periods after the first day of enactment. No employer is required to make any immediate subsidy payment nor is any qualified beneficiary relieved of the obligation to pay 100% of the premiums for continuation coverage during this transition period. Employee or qualified beneficiaries should simply be advised that the employer or plan sponsor is aware of the Act and its requirements and is prepared to comply after the close of the transition period. The employer may choose to reimburse employees for the 65% subsidy, or to apply it against future premium payments, but no commitment has to be made immediately.
6. Consider the Impact of the Subsidy on Future Reductions in Force
Recognizing that now there is an added cost to reductions in force that equates to paying 65% of COBRA premiums, employers must consider this added expense when considering the cost benefit of a reduction in payroll. Not all eligible employees will elect COBRA because of the subsidy, but it can reasonably be anticipated that more will than would without the subsidy. If you are in the process of reducing the workforce, affected employees should be advised that the subsidy is available, but application of the subsidy will not be finalized until the close of the transition period.
7. Don’t Panic
Above all, don’t over react to this change. Clearly this new provision will have some financial impact on your company. However, when it comes to notices, compliance and reporting, those details will develop over the next several weeks and you can rely on your trusted advisors at Fox Rothschild for guidance and we will be issuing frequent updates as more regulatory instruction becomes available.