COBRA Benefits Affected; Guidance Pending
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (the “Act”). Generally, the Act is an economic stimulus bill designed to address the current economic crisis, but it also includes several important changes to COBRA.

COBRA in General
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) amends sections of the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code and the Public Health Service Act (PHSA). COBRA requires group health plans to offer certain individuals, who would otherwise lose their group health plan coverage as a result of a specific qualifying event (such as employment termination or certain changes in family status), the opportunity to continue their group health plan coverage for a specified period of time at applicable group rates.

Changes to COBRA
The Act provides for a federal subsidy of 65 percent of the COBRA continuation coverage premiums for qualified beneficiaries receiving COBRA continuation coverage due to the covered employee’s involuntary termination of employment between September 1, 2008, and December 31, 2009. The proposed effective date is March 1, 2009.

IMPORTANT: Employers should begin to review their records to identify Assistance Eligible Individuals, “AEI.”” Although additional guidance and model notices will be forthcoming (as described below), it is important to identify these individuals as soon as possible so the necessary actions can be taken when ready.

The definition of qualified beneficiary includes the covered employee, the covered employee’s spouse (as defined by federal law), and the covered employee’s dependent children (as defined by the plan). Qualified beneficiaries have separate election rights under COBRA. Therefore, even if the covered employee does not elect COBRA, a covered spouse or covered child of the involuntarily terminated covered employee will qualify as an AEI. The subsidy applies to all COBRA-eligible group health plans sponsored by an employer with the exception of health flexible spending accounts offered under a cafeteria plan.

Subsidy Eligibility
Qualified beneficiaries that experienced an involuntary termination of employment between September 1, 2008, and February 17, 2009 and did not elect COBRA coverage during their initial 60-day election period must be provided another opportunity to elect COBRA coverage during a second 60-day election period. This second election period also applies to those individuals who elected COBRA coverage but have subsequently lost that coverage prior to the enactment date (e.g., due to non-payment of premiums).

Income Limitations
• Individuals making $125k+ per year are ineligible
• Couples making $250k+ per year are ineligible

How the Subsidy Works
The federally provided COBRA subsidy is 65 percent of the amount owed by AEI. A payment made by the AEI equal to 35 percent of the applicable premium is considered payment in full. The remainder must be paid by the employer, plan, or insurer and will be subsequently reimbursed by the government through payroll tax credits. The IRS and Treasury are expected to issue additional details regarding exactly how the credit process will work, including tax filing and reporting requirements, in the near future.

However, if an AEI becomes eligible for other group health coverage or Medicare, or reaches the end of his or her maximum COBRA coverage period, his or her entitlement to the subsidy ends.

Electing Other Coverage
The Act allows employers to offer AEIs the option to change their health insurance coverage when making a COBRA election under the employer’s plan. This new coverage option must have the same or lower premiums and must be available to similarly situated non-COBRA employees under the plan. If the employer chooses to offer this option, an AEI must elect to change his or her coverage within 90 days of receipt of the COBRA election notice. This provision is optional and an employer is not required to make this option available.

Top Ten Action Items
With the effective date of the COBRA subsidy not even two weeks away, employers will quickly need to address the administrative, payroll and other system changes necessary to accommodate this revision of the COBRA rules. The immediate action items will differ depending on whether the employers health plan is insured or self funded and whether the employer administers CORBA in house or using a COBRA administrator. In general, however, employers and/or plan administrators will need to do the following:

1. Identify individuals eligible for COBRA who were terminated on an involuntary basis on or after September 1, 2008 and dependents of those individuals who previously became eligible for COBRA.
2. Revise and update COBRA communications materials, placing a priority on creating a notice for those terminated employees immediately entitled to the new COBRA enrollment period.
3. Notify eligible individuals with 60 days of the bill’s enactment of their new COBRA election period and of the availability of the premium subsidy (and if applicable, other COBRA coverage options).
4. Coordinate with the employer’s payroll personal to revise systems and other procedures for paying the government’s 65% share of COBRA premium and for reflecting the revised charges on premium statements sent to participants.
5. Coordinate with payroll staff to revise systems and other procedures for obtaining reimbursement of those amounts from the federal government.
6. Coordinate with payroll personnel to revise procedures for determining participant premium overpayments and crediting the payments to future premiums or returning the overpayments directly to the participant.
7. Develop processes, procedures and systems changes necessary to end the subsidy when the individual is no longer able to claim it and to reinstate the 100% COBRA premium change if the individual continues to be eligible for COBRA after termination of the subsidy.
8. Determine whether the employer wishes to allow the former employee to switch to alternative health coverage for COBRA purposes.
9. If the employer currently pays for some portion of COBRA premiums, determine whether these payments should be restructured.
10. If significant reductions in force have been made since September 1 or may be made in the near future, determine how these rules will affect COBRA claims experience and administrative costs for self-funding plan. If necessary, perform the actuarial calculations necessary to revise future plan rates.

Additional Information
It is important to note that although the American Recovery and Reinvestment Act is now law, there is still important guidance forthcoming. As new information arises Baybenefits will communicate to you, our valued clients.

For immediate assistance, contact the Chamber Health Advantage Membership (CHAMP) partners at (415) 273-2212. You may also visit www.sfchamber.com/champ for information on CHAMP.