Responding to ARRA Subsidy Appeals

[401 Chaos]

What are the ramifications of an employer failing to immediately respond to an appeal regarding COBRA premium subsidies? Say if the employer fails to respond within the 2 days upon receipt requested in the notice. Does anybody have experience with what the DOL does if the employer does not respond at all? Are there rules or more guidance with respect to the appeals process set out anywhere--I cannot seem to find anything other than the basic forms.

Our situation is one where we are advising employer that the individual is not eligible based on date of termination and that the appeal should be denied. Apparently some at employer do not want to be seen as actively working against the former employee and so some thought has been given to just not responding. I guess if I knew or felt the former employee had accurately described the situation and provided all documentation, that might not be so bad; however, in this case we have concerns with the way the employer is characterizing the termination / severance--i.e., employee is basically trying to claim amounts paid as severance reflect continued wages and pay as active employee which would carry him into eligible AEI period.

At the very least a nonresponse seems risky and possibly likely to invite additional DOL attention. At the worst though it concerns me that a nonresponse or non-explanation might be viewed as misrepresentation if the employer does not counter false employee claims.

Any guidance would be appreciated.

[GMK]

It ain't gonna go away by itself. Not responding is lose-lose.

One approach is to deny the claim, because the company thinks the subsidy does not apply. Then, because the company wants to do the right thing, assist the former employee with filing the appeal. Here's a site to get started on the appeal:

http://www.continuationcoverage.net/

When in doubt, let Uncle Sam say whether or not the subsidy applies.

[401 Chaos]

Thanks GMK! That's pretty much what happened already. Company thought date of termination was clearly before Sept. 1, 2008 and indicated that COBRA subsidy did not apply. They explained to employee that he could appeal and he did. Now company has received inquiry from DOL asking for more information / explanation for the denial and is asking for response within 2 days. My thought is that the company would just tell DOL what happened and why it thinks termination date is before Sept. 1, 2008 and then let the DOL make the call / be the final bad guy. Others at the company, however, apparently would prefer not to have the company complete the response because that would mean including in it the earlier termination date and would be seen as the company actively countering the employee's claim for subsidy. (Not saying I agree or condone that view--just that some don't want employee to think employer is trying to work against him.)

All that background aside, the specific question that has been posed to us is what are the penalties or ramifications of failing to respond to the DOL 's letter. I cannot seem to find a clear answer to that.

[GMK]

This article:

http://www.stabenefits.com/stabenefits.com...iles/cobra1.pdf

says that the employer penalties for non ARRA compliance are the same as under COBRA without the subsidy (see page 30).

This is listed under notice requirements, but I found nothing to say it doesn't also apply to other non compliance. So, maybe like $100/day.

Everyone wants to the right thing for the former employee, but no one is sure what that is.

Just send the DOL the facts. Who knows? The DOL may decide that the former employee is an AEI. When it's this easy to get a definitive answer, there's no excuse for not responding to the DOL request.

[401 Chaos]

Interestingly, I ran across an article today in the August 2009 COBRA Guide to Thompson Publishing's Mandated Health Benefits manual. In the article, attorney Paul Hamburger addresses this issue and indicates some employers have concluded that it may not be worth the time and expense to try and pull records and respond to the DOL request since the DOL is likely to decide in favor of permitting subsidies in close calls. The article goes on to advise employers to respond so that they can provide support for their prior determination on the particular individual (and any other similarly situated individuals) and so that the DOL will know the employer had some basis for the initial denial and is taking its role seriously. I think that is great advice.

Interestingly, the article does not indicate that there are specific penalties for failure to respond nor does the DOL request itself cite any penalties so perhaps there are no penalties or intent by the DOL to penalize non-responding employers.

I understand that logic in situations involving true close calls or gray areas but I do worry more about that approach in my particular situation where the employer has reason to believe the former employee may not have provided full disclosure of the termination facts to the DOL.

[jpod]

I'm not grasping the problem. What is the big deal with faxing a letter to DOL saying "employee was terminated as of August 28, 2008," or something to that effect? If the DOL wants some proof, surely there is something which can be faxed to DOL without much effort.

Should you write a legal brief and really exert yourself? No, because who cares if DOL concludes that the individual is an AEI; if DOL wishes to give away President Obama's money, why should the employer care? You should worry about exerting yourself to defend your position only if DOL or IRS tries to hit you with penalties for not treating the individual as an AEI in the first place.

[401 Chaos]

Jpod,

Thanks for your email. I cannot speak to the reason other employers don't respond. I suppose it could be somewhat cumbersome to pull together records in some cases. In our particular case the issue isn't about difficulty in responding. In our case we are dealing with the former CEO. Company clearly believes that CEO was terminated prior to eligible period and could easily provide documentation of that. Some in the company, however, do not want to respond because that likely would result (under any reasonable interpretation of the facts) in a denial of his subsidy. So, thought was they wouldn't respond at all. That way the company doesn't offer up contradictory evidence to employee's claim. Instead they would just let DOL make its decision without the employer documenting the facts. Who knows what the employee has actually told the DOL or provided as back up. There is reason to believe that he may not have been particularly forthcoming. So, question was what happens if you just ignore the DOL's request for information, particularly if you may have reason to believe the employee has not given the DOL full facts. Most of the employers I know get a bit anxious about ignoring requests from the DOL for answers. And most get a bit anxious in arguably assisting employees in taking benefits under false pretenses. In addition to those issues, I think there is some general thought too that some small portion of President Obama's money to pay these subsidies comes out of everyone's pocket (including the company's pocket).

[oriecat]

To me, the company refusing to acknowledge the facts, especially when you have reason to believe the employee may be misrepresenting them to the DOL, equals you helping the employee commit fraud. They're not eligible under the rules as we understand them, you know it, you need to tell the DOL that. I really don't see how you can justify doing anything else. So you don't want to be the bad guy who gets his subsidy denied? Big deal, it should be denied! There are plenty of people who are upset because their term date missed the Sept 1 cut off by a few days, that doesn't make it okay.

[GMK]

I am neither a lawyer nor an enforcement officer, but I have watched people play those roles on TV.

That said, what comes to mind as a worst case scenario is that someone in the company decides not to provide the facts as they know them in response to an official US government request, and someone in DC decides that the company's someone is abetting an effort to defraud the government.

On the other hand, the company may simply end up confirming what the former CEO already told the DOL.

My opinion: The new CEO should say, "Send the information to the DOL."

And oriecat, who just posted, makes some excellent points.