Compliance Alert



		ARRA COBRA Premium Subsidy Extended On December 21, 2009, President Obama signed a defense spending bill containing provisions to extend and expand the COBRA premium subsidy established by the American Recovery and Reinvestment Act of 2009 (ARRA). As the new provisions will mean additional compliance obligations for employers, we have summarized the significant changes and outlined the necessary employer action items below: Revised AEI Definition to Expand Eligibility The definition of an assistance eligible individual (AEI) has been amended to include those individuals experiencing an involuntary termination of employment through February 28, 2010. The prior cut-off date was December 31, 2009. Removal of Confusing AEI Eligibility Language The language requiring an AEI to become eligible for COBRA during the subsidy eligibility timeframe has been removed. This language had caused significant confusion among employer groups (as detailed in the Compliance Alert dated December 3, 2009), and the focus now shifts to the date of termination. Under the new provisions, it no longer matters when an individual becomes eligible for COBRA – the important date is now that of involuntary termination of employment. Extension of Premium Subsidy The length of the premium subsidy has been extended from 9 months to 15 months. Based on these changes, an AEI is now considered a qualified beneficiary who is eligible for COBRA due to an involuntary termination of employment occurring between September 1, 2008, and February 28, 2010, and who elects COBRA coverage. These changes do not affect the employer application process for the payroll tax credit, as employers will continue to use Revised Form 941 to claim the credit. Employer Action Items There are three specific action items employers should be prepared to take in light of this new legislation. The bill requires: (1) retroactive reinstatement of COBRA coverage if certain requirements are met, (2) reimbursement where AEIs have overpaid their premiums, and (3) notification of the subsidy extension. Each of these action items is discussed in more detail below. Retroactive Reinstatement of COBRA AEIs who exhausted their 9-month subsidy before the subsidy period was extended to 15 months now have additional time to pay their 35% of the premium and retroactively reinstate their COBRA coverage if they did not pay the full COBRA premium. When an AEI pays 35% of the premium within 60 days after December 21, 2009, or (if later) 30 days after notice of the extension is provided by the employer, the employer must reinstate the COBRA coverage. Reinstated AEIs are entitled to 6 additional months of the subsidy. For example, an AEI whose subsidy ended in November and who did not pay the full December COBRA premium (and therefore lost coverage) can retroactively reinstate his or her coverage by paying 35% of the premium within the prescribed timeframes. This AEI would receive the subsidy for December 2009 and 5 additional months (6 months total). Reimbursement of Overpayment Employers must reimburse AEIs who continued to pay the full COBRA premium after their 9-month subsidy expired or credit the overpayment. As a reminder, a credit can be issued if it will be used within 180 days; otherwise a reimbursement must be made within 60 days. Required Notices Employers must notify the following individuals of the subsidy extension and right to retroactively reinstate COBRA coverage: AEIs that lost their subsidy (regardless of whether they continued to pay the full COBRA premium amount). This notification must be provided not later than 60 days after the AEI exhausted their subsidy. Employers will need to compile a list of individuals who were receiving the subsidy but whose 9-month subsidy expired. Qualified beneficiaries who were AEIs at any time on or after October 31, 2009, and qualified beneficiaries who experience a qualifying event of termination of employment on or after October 31, 2009. This notification must be provided not later than 60 days after December 21, 2009. Qualified beneficiaries who experience a qualifying event after December 21, 2009. This notification must be made in keeping with the COBRA election notification deadlines. It is anticipated that the DOL will issue model language that can be used to meet the notification requirement for those who self-administer COBRA. Once issued, these model notices will be available on the COBRA page of the DOL website. Third party administrators are also expected to update their plans to comply with the new provisions, including the notification requirements. For those using a TPA for COBRA services, HCW will keep you informed of these updates through Benefits Bulletins as the information is made available. Important Note Regarding State Continuation It is currently unclear whether the ARRA subsidy extension applies only to plans with 20 or more employees that are subject to COBRA and not to smaller groups subject to state continuation. However, if the extension is found to cover state continuation or if legislation is passed in North Carolina adopting a similar subsidy extension, we will notify the applicable groups as soon as possible. Further Information For the complete text of the legislation, please click here to download the final version of House Resolution 3326, and for additional information regarding the subsidy extension, please click here. If you have any further questions about the premium subsidy extension or the employer action items associated with it, 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.
December 22, 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