April/May 2009



By Kaye Pestaina, JD, VP Senior Health Compliance Specialist, The Segal Company

Few people who lose their jobs and are eligible for continued health coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) can afford the expense (the full cost of the coverage plus 2 percent). To help with that, the American Recovery and Reinvestment Act of 2009, signed by President Obama, provides a temporary subsidy that would cover 65 percent of the COBRA premium charged to the former employee.  
     The COBRA premium assistance subsidy program applies to all private- and public-sector group health plans subject to COBRA, and to continuation coverage under similar federal and state laws. Here are some of the program’s features:

Eligibility
Effective for the first period of coverage after Feb. 17, 2009 (generally March 2009), the subsidy is available to any qualified beneficiary who elects COBRA coverage and whose qualifying event is related to involuntary termination of covered employment that occurs between Sept. 1, 2008 and Dec. 31, 2009.
     The subsidy is phased out for couples with income above $250,000 in the year the subsidy would otherwise be received, and not available if income tops $290,000 ($125,000-$145,000 for singles). The subsidy is available for nine months maximum.

Premium Assistance Subsidy Payment
The 65 percent subsidy payment goes to the entity to which qualified beneficiaries pay their federal COBRA premiums. Employers with a group health plan subject to COBRA would receive reimbursement. Where the continuation coverage is provided under state law and is fully insured, the health insurance company will get the reimbursement.  
     Reimbursement will take the form of a credit against the payroll taxes (FICA and employees’ withholding tax) the plan or employer 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.

Additional COBRA Notice
Employer-funded health plans must explain 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 Sept. 1, 2008, whether or not they had elected COBRA at that time. Notice must be provided to those who had a qualifying event before the date of enactment by April 18, 2009.

Implementing the New Subsidy
Plan sponsors should work toward compliance with the COBRA premium assistance program because implementationis required almost immediately. The group health plan will have to determine who is eligible and, therefore, can maintain COBRA coverage by paying only a portion of the regular premium. Plan sponsors should:

• Determine how to identify individuals who qualified through involuntary termination.
• Identify qualified beneficiaries whose health plan coverage terminated after Aug. 31, 2008, including those who did not elect COBRA, because the plan will need to notify them about the new election and subsidy options.
  
• Modify existing COBRA election notices to include information regarding the premium assistance subsidy and, if applicable, new coverage elections.
  
• Review 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.
  
• Prepare to report supporting information to the government to document the premium assistance amount they are requesting and confirm that qualified beneficiaries met the eligibility standards.
  
• Review their processes for determining and paying payroll taxes in order to be able to modify them as needed to receive the subsidy payments.
  
  

Kaye Pestaina is a vice president and senior health compliance specialist in The Segal Company’s Washington, D.C., office. She has more than 15 years of legal experience, including working as a senior health law attorney in the U.S. Department of Labor’s Office of Health Plan Standards and Compliance Assistance in the Employee Benefits Security Administration. Kaye can be reached at 202-833-6419 or kpestaina@segalco.com.