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COBRA Subsidy


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The answer to this seems obvious to me but a large and prominent COBRA administrator feels differently than I do:

An employee involuntarily terminates employment on December 31, 2009, and loses coverage at the end of that day. If the employee otherwise meets the requirements, can the employee receive the COBRA subsidy?

(This scenario would also apply to employees who involuntarily terminate during December and whose coverage ends until the end of the month.)

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Thanks for the link. I missed that thread.

I think the argument that the loss of coverage occurs on January 1 is unpersuasive. If coverage ends, as you state as an example on the other thread, at 11:59:59 on December 31, wouldn't the employee be eligible for COBRA coverage on 11:59:5901 on December 31? (Technically, there would be an infinite number of zeros before the one, I think.)

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To say it more precisely, if the employee has coverage on December 31, she/he has coverage for all of December 31. In this case, the employee has to wait until January 1 begins before being eligible for COBRA.

But some may disagree, and others may pass a subsidy extention that defers this debate until a later date.

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I started the earlier thread. As noted therein, there is an off-point example in the IRS Notice suggesting that the "loss of coverage" occurs at the end of the calendar month if absent COBRA the coverage would continue through the end of the month of termination. Extrapolating this into December 2009, the "loss of coverage" would occur on Dec. 31, 2009, rather than Jan. 1, 2010, in which case the individual would be an AEI. Not clear, however, if this is/was really the IRS' intent. A risk-adverse employer might consider denying the subsidy, but at the same time encourage the terminated employee to file a quicky appeal with the DOL with the hope/expectation that the DOL will overturn the denial. That will, as a practical matter, resolve the issue because it is extremely unlikely if not impossible that the IRS would take a position contrary to what the DOL appeal reviewers are taking. If, on the other hand, the DOL does not overturn the denial, then the employer has not taken any risk vis a vis its Form 941 compliance. I realize this is cumbersome to the point of being ridiculous, but I don't think the answer to the Dec. 31 vs. Jan. 1 question is clear.

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If loss of coverage is January 1, 2010, someone who terminates on December 31, 2009 would not be eligible for the subsidy under any circumstances, right? Why, then do Congress and the IRS have the language about those terminating employment through December 31 being eligible for the subsidy?

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Another hypothetical:

What if plan is not artfully drafted and says that "coverage ends at midnight on the last day of the month"? (Real world plan language, unfortunately.) If so, coverage actually ends between December 30 and December 31 (but on December 31). If a terminated employee goes to the hospital the afternoon or evening of December 31, he or she is not covered as an active employee any more, but will the employee be covered for the expenses by electing COBRA?

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All good questions, Chaz. Clearly Congress was primarily concerned with when someone lost his or her job, not so much with when that individual would be entitled to COBRA as a result of losing his or her job. The IRS was so fixated on issues concerning employer-subsidized COBRA payments and application of the "35%" rules that it muddied the waters when it comes to this very simple, real-life scenario.

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Interesting ideas. If you lose coverage at the end of December 31, when does COBRA coverage start? Seems to me that there is no time on December 31 when your actual policy doesn't cover you, so my answer would be January 1. But you would (or maybe would) disagree. That's why I prefer the phrase 'last day of coverage is' instead of 'coverage ends on'

In a real case, I'd use jpod's risk-adverse approach (deny and appeal) to learn the correct answer.

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The Senate bill to extend this does address the issue. Newsletter I received says:

As reported earlier, the House introduced H.R. 3930, proposing an extension to the COBRA subsidy as well as certain changes to COBRA continuation of coverage. The

Senate recently introduced the COBRA Subsidy Extension and Enhancement Act of 2009 (S. 2730), its version of a subsidy extension bill. Briefly, the Senate bill proposes to:

• Increase the available subsidy from 65% to 75% effective with the first premium payment due after enactment.

• Extend the duration of the subsidy from 9 months to 15 months, with a final subsidy availability date of December 31, 2010.

• Extend the involuntary termination period from December 31, 2009 to June 30, 2010.

Provide a “grace period” of 31 days for an individual to become COBRA eligible after the involuntary termination and still qualify for the subsidy.

• Allow individuals who experience an involuntary reduction in hours to qualify for the COBRA subsidy.

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They most certainly did not answer the question. All the first Q&A does is reiterate the law: you must become eligible for cobra before Jan. 1. It does not answer the real question, which is whether someone whose insurance is already carried through Dec. 31 becomes eligible for cobra on Dec. 31 or Jan. 1. This issue will impact tens of thousands of people, probably, yet either the DOL intentionally side-stepped it or did not realize that it is an issue. Amazing!

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How does that first one not really answer the question? It seems very clear to me.

The DOL pretty much said exactly what it said before (that a person is an AEI only if the person is eligible for COBRA continuation coverage at any time during the period ending on December 31, 2009).

See above for my two hypothetical scenarios, the answers to which are still not clear to me even after the new guidance.

(This is all theoretical, as the DOL pretty clearly is saying that I am wrong in its view.

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They most certainly did not answer the question. All the first Q&A does is reiterate the law: you must become eligible for cobra before Jan. 1. It does not answer the real question, which is whether someone whose insurance is already carried through Dec. 31 becomes eligible for cobra on Dec. 31 or Jan. 1. This issue will impact tens of thousands of people, probably, yet either the DOL intentionally side-stepped it or did not realize that it is an issue. Amazing!

A client spoke with a live person at the DOL who confirmed that the answer is "NO" (i.e., COBRA eligibility starts on January 1) so it apparently have considered the issue, although it reached the wrong answer in my view.

Of course, my view counts for nothing.

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Chaz, do you know if your client phrased the question which needed to be asked, and did so precisely? Also, do you know how high up or experienced the individual to whom the client spoke is? It is one thing to ask the correct question precisely and get a "no" answer from someone who knows what he or she is talking about. It is quite another to misstate the question and/or get an answer from someone who received 5 days of training and is a low Grade employee assigned to answer the telephone.

Given how common it is for insurance to continue through the end of the month, I cannot believe that the Administration is behind a "no" answer. As noted that will effectively eliminate the subsidy for tens of thousands of people who lose their jobs in December 2009.

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I don't know the answer to any of your questions, although I believe that my client just spoke to a regional rep in the client's area so it probably wasn't a senior person.

I also don't know how she phrased the question but she is faced with multiple terminations on December 31 so I feel fairly confident that she asked it in the correct way.

I can't disagree with you about the optics and the effect on employees but doesn't the simple fact that the DOL felt compelled to issue new guidance indicate that the answer is "NO"?

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Chaz, I don't know what to think, but my best guess is that the DOL thought they should put something out there because they were getting a million phone calls. However, the 12/31/ vs. 1/01 issue is an IRS issue, and therefore I doubt that DOL would issue something that it felt resolved the issue without the IRS first weighing in on it publicly, such as through its own website's Q&As.

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  • 3 weeks later...

Not only is the extension complete, but they changed the wording of the original legislation a bit. Now, it is perfectly clear that if the involuntary termination of employment occurs on or before Feb. 28, 2010, the subsidy applies even if the first day of the COBRA period is March 1, 2010.

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