Understanding the New COBRA Subsidy: Further Clarification and Employer Actionable Items

The American Recovery and Reinvestment Act of 2009 (ARRA) signed into law on February 17, 2009, contains a 65% COBRA premium subsidy for up to nine months for “assistance eligible individuals” (AEIs) and their dependents (see the detailed discussion in the Compliance Alert dated February 18, 2009). Commentators have offered insights on this topic, and guidance is now available from both the Department of Labor (DOL) and the Internal Revenue Service (IRS). In addition, more information has become available regarding the COBRA subsidy, and we have compiled this data for our clients’ convenience.

Clarification on Applicable Coverage
The subsidy program coverage rules are mandatory for ALL employers required to provide COBRA continuation coverage. Similar subsidy rules will apply to federal and state government plans, and to employers who are subject to state continuation laws (those with fewer than 20 employees). The DOL has now stated that the special election period opportunity does not apply to coverage sponsored by employers with less than 20 employees. Once further updates are issued on how this section of the law will be implemented for employers under state continuation, we will provide additional information to those employers.

Employer Actionable Items
Whether you self-administer your COBRA plan or administer it through a third party administrator (TPA), you will be responsible for certain actionable items. Click on the applicable link below to view a checklist of action items to consider:

Employers Using Third Party Administrators (TPAs)

Employers Who Self-Administer COBRA

Penalties for Non-Compliance
The COBRA subsidy provisions are expected to have a significant impact on group health plans. It is vital that employers understand what they must do to comply with the new COBRA provisions as the consequences for failure to comply include:

• Excise penalty of $100 per day ($200 per day if more than one qualified beneficiary is affected)
  
• Statutory penalties of $110/day for failure to provide initial and election notices
  
• Possible lawsuits from qualified beneficiaries to recover COBRA coverage
  
• Possible awarding of damages to qualified beneficiaries for “a worsening of a qualified beneficiary’s medical condition due to failure to provide an adequate COBRA notice”
  
• Possible awarding of attorneys’ fees and interest to prevailing party
  
• Lawsuits under ERISA and PHSA
  
  

Additionally, individuals who are denied treatment as an Assistance Eligible Individual (AEI) are entitled to an expedited review of the denial. The Department of Labor has 15 business days after receipt of an application for review to make a determination regarding the individual’s eligibility.

If you have any further questions about the new COBRA premium subsidy, please contact our office at (919) 403-1986.

Important Notice: Hill, Chesson & Woody does not engage in the practice of law, accounting, or medicine. Therefore, the contents of this communication should not be regarded as a substitute for legal, tax, or medical advice.

March 6, 2009

Hill, Chesson & Woody Employee Benefit Services

194 Finley Golf Course Rd, Suite 200,
Chapel Hill, NC 27517
Phone: 919.403.1986
Fax: 919.869.2063

www.hcwbenefits.com