ARRA COBRA Rules

[jpod]

Trying to take a pulse. Is anyone self-designing the new/revised COBRA forms required by ARRA or are you all waiting (at least a couple of more weeks) for the DOL to publish its model notices? I realize that there is a certain amount of retroactivity built in to the ARRA rules, but that's not very helfpul when your clients are laying people off and negotiating severance arrangements.

Also, has anybody from DOL said anything in public yet about when we might see those model notices and/or other interpretative guidance?

[J Simmons]

I've only had a chance for a quick overview of those statutory provisions, but it appears that the 60 days election period will begin to run when the notice is given. So providing sooner rather than later (such as when the DoL model notice is published) will mean that the 60 day election period would end sooner rather than later too for those already involuntarily terminated on or since 9/1/2008.

[Guest Tauriffic]

Trying to take a pulse. Is anyone self-designing the new/revised COBRA forms required by ARRA or are you all waiting (at least a couple of more weeks) for the DOL to publish its model notices? I realize that there is a certain amount of retroactivity built in to the ARRA rules, but that's not very helfpul when your clients are laying people off and negotiating severance arrangements.

Also, has anybody from DOL said anything in public yet about when we might see those model notices and/or other interpretative guidance?

I did the ALI-ABA webinar last week. DOL said you can expect the model notices toward the end of March. There's enough in the regs to hobble through a form notice. The DOL said enforcement for shoddy notices wouldn't be at the top of their list, given the uncertainty and the rush to produce model notices. As long as you show some type of "due diligence" in putting the notices together, you should be fine. Remember, you get 44 days from enactment (in most plans) to get the notice out. But like I said, the DOL rep at the webinar all but said they are not going to lodge enforcement actions against employers for waiting for the model notices in early April...Hope this helps.

[jpod]

Tauriffic: Good information. When they said "late March" did they mean that they were blowing off the directive to get model notices out within 30 days of enactment, or did they mean that they were going right down to the wire but would publish by March 19?

[jstorch]

I have one client pushing to get out the "second chance" notice now to those previously terminated, to start the election deadline running and minimize adverse selection. If DOL comes out with something drastically different than what we send, we'll consider whether to send a new notice based on the DOL model and extend the election period. However, I don't think a new notice will be necessary unless DOL expands upon the statutory requirements.

[J Simmons]

I don't see anything tricky in what the special ARRA COBRA rights notice needs to cover, nor anticipate that DoL's model notice will be earthshattering to any extent.

Given the rush job this is at DoL, there likely won't be any requirements beyond what is concretely spelled out in the statute.

[Guest George Chimento]

<<Given the rush job this is at DoL, there likely won't be any requirements beyond what is concretely spelled out in the statute.>>

Concrete? It's like a swamp. Three issues are coming up on these Notices.

1. For persons who are not AEIs and who severed in the period 9/1 through 2/16/09, do they get the notices? I think not, based on 3001(a)(7)©, but look at 3001(a)(7)(A). They conflict.

2. If these non-AEIs do get the notices, can they just get a second crack at COBRA for the balance of their COBRA period, even if not eligible for the subsidy?

3. For anyone who is eligible for the subsidy but loses rights to it later (i.e. becomes eligible for a bad plan) can they just continue with full cost coverage for the balance of the COBRA period under normal COBRA rules? The Committee reports say "yes," but only refer to "trade down coverage."

In short, what started out as subsidy legislation is looking somewhat like an extension of new COBRA rights. I don't know if the DOL Notice will address all this, but it is very confusing and makes me leary about sending out early notices.

[jpod]

My preference for using DOLs' model notice is that I expect that they would resolve at least some of the interpretative issues in ARRA. For example, the subsidy is lost when someone becomes eligible for another plan. What is "eligible?" Does it mean actually enrolled (as the word has been defined for other COBRA purposes) or merely "eligible?"

Also, as George noted, do we really have to send second chance notices to people who were not involuntarily terminated?

[GMK]

From what I've read, eligible means eligible even if not enrolled (and I do not expect the model notice to surprise us, but it could).

For now, we have prepared a simple supplemental notice in 2 versions to send with normal COBRA notification documents. Both versions of the supplement outline the basics of the subsidy, so that everyone is informed, with a note advising that the government may issue additional rules, clarifications, etc.

Basically, one version of the supplement then says that you aren't eligible for the subsidy, because (fill in blank, e.g., not involuntarily terminated). The other version details the AEI's premium amounts with the subsidy, how long the subsidy can continue, that the AEI will pay the full premium when the subsidy ends, and the other prescribed information.

[jpod]

GMK: What have you read that tells you that eligible means merely eligible?

[GMK]

I found this article useful:

http://www.alston.com/files/Publication/00...%20Bulletin.pdf

[jpod]

You're right; the authors of this article seem to think that eligible means merely eligible. But I'm not so sure.

[GMK]

jpod - I agree with you. It seems logical that other plan eligibility could end up being the same as defined for other COBRA purposes.

I hope they say one way or the other when they issue the model notice.

[Guest Sieve]

Tauriffic --

Your post #3 says the supplemental/special COBRA notice must be sent within 44 days from enactment. I thought the Notice deadline was 60 days from enactment

[401 Chaos]

Can someone clarify for me who is responsible for paying the subsidy and seeking the tax credit for fully-insured plans subject to COBRA?

If I understand correctly, employers bear responsibility for covering subsidy for self-insured plans and that makes sense but what I see about fully insured plans seems to vary. Some seem to say that employers are responsible for covering COBRA subsidy and seeking credit for fully insured plans subject to COBRA rules but maybe not in cases of plans not subject to federal COBRA rules where continuation coverage is via state law. In many cases I see, employers in fully insured plans outsource or directly rely upon the insurer or some COBRA administration branch of the insurer to handle COBRA and receive and process COBRA premium payments. In situations like this, would the insurer then become the one responsible for covering the subsidy and seeking reimbursement or are the situations when that happens much less common? I would think the insurance companies would be going crazy if they thought they would have to forego or front the 65% COBRA piece in many cases.

I suppose my question might more succintly be summarized by asking when exactly do insurers bear responsibly for "paying" the 65% premium and seeking the credit. Thanks.

[Guest samc6782]

GMK: What have you read that tells you that eligible means merely eligible?

I've been calling TPAs and the EBSA people, and eligible clearly means eligible.

This means that employers should be looking carefully at whether employees laid off are able to go on their spouses' (or parents') plans. Depending on contributions there, staying on their old plan and paying the COBRA premium with the subsidy could be cheaper. However, that isn't allowable according to COBRA rules, and the government will impose a penalty of 110% of the amount subsidized if they catch people doing that.

The thing is, they aren't policing it at all yet, and don't even know how they will be policing it. The 110% penalty is the "stick," though, the threat of which we are telling employers to use to keep people who shouldn't be on their COBRA off of them.

EEs still have the option of staying on COBRA but declining COBRA if they are eligible elsewhere.

[Guest Sieve]

Chaos --

My understanding is that the employer would be responsible for the 65% subsidy. Presumably, the employer will have the $$ available because it will receive a deduction from its federal payroll taxes owed.

How it actually will work adminsitratviely, however, I have no notion--perhaps others do.

[oriecat]

As the employer, we will end up fronting the 65%. If premiums are due on the 1st to the carrier, we have to pay the bill. We cannot cancel someone's COBRA until they are more than 30 days past due, which means we can be out the whole premium for over a month. We will not be allowed to take the credit off the payroll taxes until the 35% premium is received. So if someone mails their 35% on the 30th day and you get it a couple days later, you've been in the hole for that premium for over a month, and then cannot take the credit until you happen to pay taxes next. It's a nightmare and as both payroll and benefits administrator, dealing with the notices/enrollment side and the payroll tax side, I just want to rip my hair out.

[401 Chaos]

Thanks Oriecat. That makes sense and unfortunately matches what I feared. The Act and lots of discussion do reference insurers being responsible for the premium and having to claim the credit in certain cases. Can anybody explain what those situations would entail?

Also, it is my understanding that the second chance coverage and premium subsidy will generally start retroactive back to March 1, 2009. Is this correct? That really does not seem fair to those participants who may not be aware of or know about the opportunity to elect COBRA and get the subsidy until they receive the notice. Even if everbody gets notices out pretty quick, a good portion of March will be gone and participants may have foregone medical treatment or services because they did not realize they could get coverage. Given the extra benefits provided by the changes, perhaps that is fair and this is just intended to help people cover expenses but seems that sort of frustates the purpose of the changes too if one of the 9 months of subsidized coverage includes a period when you did not necessarily anticipate coverage.

[Guest George Chimento]

Can someone clarify for me who is responsible for paying the subsidy and seeking the tax credit for fully-insured plans subject to COBRA?

Under IRC 6432(b)(2)(A) and (B), the employer is entitled to the reimbursement if the plan is (A) subject to ERISA COBRA or (B) if the plan is uninsured in whole or in part. 6432(b)(3) states that if the plan is fully insured and not subject to ERISA COBRA, the insurer pays. In other words, you first look to see if federal COBRA applies. If it does, the insured or non-insured nature of the plan is irrelevant; the employer gets the reimbursement.

Inadvertantly, 6432(b)(3) creates a problem for plans covered by mini-COBRA (not federal COBRA) in states where the employer (not the insurer) is responsible for premium collection from mini-COBRA beneficiaries. My conversations w/ insurance industry people here (MA) indicate no intention by insurers to start advancing mini-COBRA premiums and filing for reimbursements. I think that the government will allow small employers to pay and get reimbursed as if they were under 6432(b)(2). That will later be covered by a "technical correction" to the statute.

[401 Chaos]

George, many thanks. I had somehow missed the "or" at the end of 6432(b)(2)(A)(iv) on first read. So, seems clear all plans subject to COBRA require employer to act as do all plans which are completely or partially self-insured. That should leave insurers covering non-COBRA governed plans that are fully insured. We too are seeing no immediate activity with respect to insurers taking up this role for small plans subject to state "COBRA" rules.

[Peter Gulia]

George Chimento, thank you for asking insurers about what they expect to do.

Is anyone aware of a State's "mini-COBRA" law that doesn't require the employer or group contract holder to collect continuation premiums?

[Guest SHaddon]

George Chimento, thank you for asking insurers about what they expect to do.

Is anyone aware of a State's "mini-COBRA" law that doesn't require the employer or group contract holder to collect continuation premiums?

In California, Cal-COBRA is administered completely by the carriers. They do the premium billing and the only time the ex-employer gets involved is if they offer an annual open enrollment.

[Peter Gulia]

Another ambiguity to unravel: How does a multiemployer health plan get reimbursement of the portion of a continuation premium not paid by the continuee? A multiemployer plan might have few employees (or none at all) to take a credit against payroll taxes. And there might be no law or agreement that requires the continuee's former employer to have any involvement in collecting continuation premiums. Concerning union-represented employees, some employers don't provide any facility for handling welfare-benefits contributions, even for active employees.

The statute does say that if the premium assistance due is more than the credit against payroll taxes aborbs, the Secretary of the Treasury treats it as an overpayment of payroll taxes. But the mechanics might be difficult, especially concerning a multiemployer plan that happens to have no employee.

The statute also says that its provisions for the person entitled to reimbursement, and the method of reimbursement, are "except as otherwise provided by the Secretary".

[Peter Gulia]

Here's an explanation of one of New Jersey's continuation provisions.

http://www.state.nj.us/dobi/division_insur...sehblt07_02.pdf

[jpod]

I have not read this, but why would this law not be preempted by ERISA to the extent that it purports to regulate an employer whose plan is subject to ERISA?

[Peter Gulia]

Someone might argue that ERISA doesn't preempt a State law to the extent that the law regulates insurance. ERISA 514(b)(2)(A). An employer that obligates itself under a group health insurance contract has some obligations under that contract. Along with this, a continuation provision might be an express or implied provision of the contract. Following this, some might argue that an employer could be included in "any person" that ERISA doesn't "exempt or relieve" from a State law that regulates insurance.

On the other hand, I wouldn't mind seeing an employer refuse to collect continuation premiums. I'd like to see how the litigation turns out.

[401 Chaos]

Without giving any thought or study to it, I agree with Peter. As a general matter, ERISA-regulated health plans that purchase group insurance coverage rather than fully self-insure are generally subject to state health insurance laws to the extent they regulate insurance provided under the group policy purchased for the plan. That is to say, ERISA generally does not preempt state insurance laws. I think that can carry over to other federal laws as well such as COBRA. I have, for instance, heard state insurance regulators note that their state continuation coverage laws generally apply to all employers who purchase state-regulated health insurance including large employers who are generally subject to COBRA. Interestingly, I have heard it asserted that when the state laws do not include gross misconduct exemptions it may be possible to argue that individuals who are terminated for gross misconduct and thus may be cut out of COBRA may nonetheless be entitled to continuation coverage under the state laws. In other words, COBRA would only preempt to the extent it is inconsistent with state law and in that case it wouldn't necessarily be inconsistent since the bad actor would only be entitled to one coverage option at the time (i.e., the state continuation coverage and not COBRA coverage). I have no idea whether that is right or not and have never seen it pushed or pursued. Like Peter, I would enjoy seeing the issue litigated as long as it didn't involve me.