February 9, 2009
Proposed COBRA Premium Assistance Subsidy in the Pending Economic Stimulus Legislation
This Capital Checkup discusses proposed legislation currently under consideration in Congress. When a compromise bill is passed and signed into law, Sibson Consulting will prepare a summary.
In recognition of the fact that few people eligible for continued health coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) - those covered by most employer-funded health plans who lose their jobs - can afford to take it because of the expense (the full cost of the coverage plus 2 percent), the economic stimulus legislation now before Congress, the American Recovery and Reinvestment Act of 2009, would provide a temporary subsidy for COBRA premiums. The proposed subsidy would cover 65 percent of the COBRA premium charged to the former employee.
This Capital Checkup provides an overview of the proposed COBRA subsidy provisions that are similar in the House and Senate versions of the bill. Although other parts of the stimulus package are politically controversial, this feature has not drawn criticism and is likely to be part of whatever legislation is ultimately passed by Congress. The Senate is currently considering its alternative to HR 1, the bill passed by the House of Representatives on January 28.1 Of course, details of the language and the policy are open to modification until the law is passed, so its final terms may not be the same as what is described here. Congress had hoped to have a bill ready for President Obama's signature by February 16 (Presidents' Day), but that will depend on how quickly the Senate passes its version and the differences between the two can be reconciled.
If enacted as part of the stimulus law, the COBRA premium assistance subsidy program would apply to all private and public sector group health plans. Because the subsidized coverage would need to be available almost immediately after enactment, this Capital Checkup also identifies actions that sponsors of group health plans might want to take now in order to be prepared, if the measure passes.
Proposed COBRA Premium Assistance Subsidy Program
Key features of the proposed COBRA premium assistance subsidy program follow:
- Eligibility The subsidy would be available to any COBRA qualified beneficiary who elects COBRA coverage and whose qualifying event is related to involuntary termination of covered employment that occurs between September 1, 2008 and December 31, 2009. The subsidy would be available for a maximum of 12 months. It would be available on a month-by-month basis, for coverage provided after the date the stimulus bill is enacted. So, even though it would be available for people who lost their jobs before the law is passed, it appears that coverage would not be retroactive. Under the proposal, eligible qualified beneficiaries would need to pay their discounted share of the premium before the plan could receive the subsidy, which would cover the rest of what the participant would otherwise have had to pay.
- Premium Assistance Subsidy Payment The subsidy payment for the remainder of the premium would go to the party to which qualified beneficiaries pay their COBRA premiums. Reimbursement would take the form of a credit against the payroll taxes (FICA and employees' withholding tax) that party would otherwise pay to the Treasury Department with regard to its own employees. If the COBRA premium subsidy amount is more than the payroll taxes owed, the rest would be reimbursed by the government in cash, as the bills are currently designed. How this works would be spelled out in Treasury Department regulations. It is likely that plans will need to begin providing COBRA coverage on a discounted basis well before the Internal Revenue Service will be ready to handle reimbursements.
Under the House bill the qualified beneficiary would pay 35 percent of the premium and the plan sponsor would be reimbursed for the remaining 65 percent. Under the Senate bill the subsidy would only cover 50 percent of the participants' COBRA premiums.
- Termination of the COBRA Subsidy The subsidy would stop at the end of the 12-month period, or earlier under certain circumstances. For example, an individual would cease to be eligible for the subsidy on the date that he or she first becomes eligible for coverage under another group health plan (other than health flexible spending arrangements, health reimbursement arrangements or on-site clinics that provide first-aid and wellness benefits) or Medicare. The length of time that COBRA continuation coverage must be made available to a qualified beneficiary2 would not change under the subsidy proposal.
- Extended Election Period If a qualified beneficiary who would be eligible for the subsidy has not yet elected COBRA when the law passes, he or she would have an additional opportunity to elect it. COBRA coverage elected during this extended election period would be retroactive to the date of enactment of the stimulus bill. It would not extend the total period of available COBRA coverage measured from the date the person's employment ended.
- Additional COBRA Notice Employer-funded health plans would have to explain the availability of the premium subsidy when they give COBRA election material to qualified beneficiaries who lose coverage before 2010, and to those who had a qualifying event on or after September 1, 2008, whether or not they had elected COBRA at that time. The proposals would require the Labor Department to provide model notices that plans can use for these purposes.
Preparing for Compliance
Plan sponsors may want to start planning for compliance with the COBRA premium assistance program because implementation will be required almost immediately, if the legislation becomes law. Unlike earlier targeted subsidy programs, the group health plan, rather than the individual, will have the burden of determining who is eligible and, therefore, can maintain COBRA coverage by paying only a portion of the regular COBRA premium. The following are among the items that plan sponsors should consider in order to prepare:
- Determine how to identify individuals whose qualifying event was triggered by involuntary termination. Although loss of plan eligibility due to a reduction in hours, retirement or voluntary quit are also qualifying events that entitle people to COBRA, in those circumstances the subsidy is not available.
- Identify qualified beneficiaries whose health plan coverage terminated after August 31, 2008, including those who did not elect COBRA, and consider how to determine which of them were involuntarily terminated, because the plan will need to notify them about the new election and subsidy options.
- Plan sponsors should review their COBRA premium methodology and be prepared to document that it meets the COBRA standards, in case that is required in order to receive the reimbursement.
- Plans will need to prepare to report supporting information to the government to document the premium assistance amount they are requesting and confirming that the qualified beneficiaries for whom the premium assistance is sought met the eligibility standards.
- Plans will also need to review their processes for determining and paying payroll taxes in order to be able to modify them as needed to receive the subsidy payments.
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As with all issues involving the interpretation or application of laws, health plan sponsors should rely on their legal counsel for authoritative advice on the implications of pending legislation and new laws. Sibson Consulting can be retained to work with plan sponsors and their attorneys as they prepare to comply with the expected COBRA provisions in the stimulus law, including providing assistance in developing policies and procedures to address the new obligation, developing notices and evaluating COBRA methodology, if necessary.
- The text of HR 1, as passed by the House of Representatives and the Senate's amendments to it, can be accessed from THOMAS, the Library of Congress Web site. (Click on the following text to return to the Capital Checkup.)
- COBRA must be provided for 18 months if the reason for the qualifying event is an involuntary termination. (Click on the following text to return to the Capital Checkup.)
Capital Checkup is Sibson Consulting's periodic electronic newsletter summarizing activity with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.