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Guest Article
From Mandated Health Benefits--The COBRA Guide, published by Thompson Publishing Group, Inc.
Summary: The COBRA-related provisions in the Trade Act of 2002 have several ambiguities, and raise many questions, that employers and administrators must struggle with in complying with these new requirements. |
On Aug. 6, President Bush signed the Trade Act of 2002 (H.R. 3009) into law. Primarily, this law gives Bush trade negotiating authority and includes a major expansion of earlier laws that provide trade adjustment assistance (TAA) for people who lose their jobs because of trade-related reasons, such as competition from foreign imports. But the law also includes health insurance assistance in the form of a tax credit equal to 65 percent of the cost of COBRA coverage, and extends the COBRA election period in certain cases. Currently, the credit only applies to workers who lose their jobs due to trade-related reasons. However, it is widely expected that this new law will form the basis for future legislation that will include a broad-based COBRA tax credit for all COBRA qualified beneficiaries.
Eligibility for Tax Credit
Under the new law, the tax credit is available for workers who: (1) lose their jobs and are determined to be eligible for TAA benefits; or (2) are between ages 55 and 64 and receiving monthly benefits from the Pension Benefit Guaranty Corporation (PBGC). In addition, for continued tax credit eligibility, individuals must not be covered by other government or private insurance coverage and must not be imprisoned under federal, state or local authority.
Eligibility for TAA benefits will be determined by the U.S. Department of Labor or state labor agencies. Through a certification process, the appropriate agency determines that a particular job loss was due to trade-related reasons (for example, jobs that are lost due to overseas business or are adversely affected by foreign imports), and also determines the effective date of that job loss.
The credit provisions generally are effective in 2002; however, eligible coverage months for claiming the credit begin no earlier than 90 days after Aug. 6, 2002, the enactment date.
Mechanics of the Tax Credit
The amount of the tax credit is equal to 65 percent of the cost of "qualified health insurance" that must be paid by a qualifying individual in any month. Thus, for COBRA purposes, the credit equals 65 percent of the COBRA coverage cost. However, the credit also can be applied toward the purchase of continuation coverage under state law as well as other types of coverage, such as state high-risk pools.
The credit is referred to as "advanceable and refundable." It is refundable because a taxpayer may obtain a refund from the IRS if the tax credit's value exceeds the taxpayer's federal tax liability. Being advanceable refers to a separate provision where the tax credit can be forwarded to an employer or health plan after the Treasury Department issues regulations -- supposedly no later than Aug. 1, 2003. Essentially, an eligible individual can have the credit forwarded to the former employer or health plan, and then pay the remaining 35 percent of the COBRA premium. The employer or health plan is responsible for seeking the premium balance from the government through a newly established procedure (perhaps by claiming an offset against federal payroll taxes, for example).
New COBRA Election Period
In a last minute addition to the trade law, Congress added a special 60-day COBRA election period for individuals eligible for TAA benefits and the COBRA tax credit. The new election period applies to those who had not previously elected COBRA coverage and are deemed eligible for the tax credit provisions, but only if the eligibility determination occurs within six months of the loss of group health coverage. If COBRA coverage is elected, it will begin on the first day of the special election period.
In a related provision, the law clarifies that the period between the loss of coverage and the beginning of the special election period does not count against the 63-day break in coverage rule under the Health Insurance Portability and Accountability Act (HIPAA). (Under HIPAA, if a group health plan imposes pre-existing condition exclusions, the exclusionary period cannot exceed one year, less prior creditable coverage under another plan. That prior creditable coverage can be disregarded, however, if a break in coverage of at least 63 days exists. COBRA coverage can help avoid such a break in coverage. In addition, this special legislative rule will help qualifying individuals bridge a period of no coverage with the special TAA benefit election period.)
Implications
The new COBRA provisions under the Trade Act raise many questions for employers, which include:
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These are just a few ambiguities and issues that result from the enactment of this new COBRA tax credit. Undoubtedly, other questions will occur as employers and administrators struggle to implement these provisions and as government guidance is issued in the future.
More details on this issue will appear in the September 2002 supplement to Mandated Health Benefits -- The COBRA Guide, ©Thompson Publishing Group, Inc., 2002. All rights reserved.
BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above.