COBRA Subsidy Available for Reduction in Hours Followed by Involuntary Termination

Posted on March 10, 2010 by Amy Klein

There is a second bite at the COBRA apple for employees who initially lost group health plan coverage as a result of a reduction in hours of employment during the period beginning September 1, 2008, which is followed by an involuntary termination of employment on or after March 2, 2010. These individuals (and their affected family members) would normally not be eligible for COBRA continuation of coverage because they were not covered by the health plan on the day before the termination of employment. However, the Temporary Extension Act of 2010 extends the availability of COBRA continuation of coverage, and the 65% COBRA subsidy, where there is a reduction in hours (resulting in a loss of coverage) followed by an involuntary termination of employment.

If the employee did not make a COBRA election when eligible as a result of the reduction in hours, or made the election and later dropped coverage, the involuntary termination of employment is treated as a qualifying event. However, the 18 month period of COBRA continuation is considered to have begun at the reduction in hours qualifying event. Therefore, the COBRA subsidy for involuntary terminations is only available for the difference between 18 months and the number of months of COBRA available after the loss of coverage due to reduction in hours.

For example, if a reduction in hours qualifying event occurred on 11/30/2009, COBRA would have begun on 12/1/2009 and would end on 5/31/2011. If that individual had an involuntary termination on 3/9/2010 (with the loss of coverage at the end of the month in which the termination occurred, 3/31/2010), the post-termination COBRA continuation would be offered from 4/1/2010 through 5/31/2011 (18 months – 4 months of reduction-of-hours COBRA = 14 months). Because the entire post-termination COBRA period is less than 15 months, the 65% COBRA subsidy will be available for the entire 14-month period.

The COBRA administrator must provide a notice describing this new right to elect subsidized COBRA to qualified beneficiaries who lost group health plan coverage as a result of reduction in hours on or after 9/1/2008 and who are terminated between 3/2/2009 and 3/31/2009 (proposals in Congress would extend this date to 12/31/2009). The notice must be provided within 60 days following the involuntary termination of employment.
 
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Procedures Should Be Implemented To Comply With New Self-Reporting And Excise Tax Payment Requirements For Certain Health Plan Violations

Posted on January 4, 2010 by Ted Lewkowicz

Starting January 1, 2010, employers and certain other entities that administer group health plans will be required, for the first time, to report on an Internal Revenue Service ("IRS") form certain types of group health plan violations and pay the applicable excise taxes. Violations that must be reported include a failure to satisfy health coverage continuation requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), certain requirements under the Health Insurance Portability and Accountability Act ("HIPAA"), certain mental health benefit parity requirements, childbirth hospital stay requirements, and certain health coverage continuation requirements for seriously ill higher education students. Administrators of group health plans were not required to self-report such violations when they were discovered, and the lack of such self-reporting often resulted in any applicable excise taxes not being paid. The IRS has issued regulations that will require such violations to be self-reported, and will require any applicable excise taxes to be paid in a timely manner.


Steps that should be implemented by employers to comply with these new requirements include:

making sure that employees or other persons who are involved in the administration of each applicable group health plan are informed about these new requirements;

implementing procedures that will help ensure the timely discovery of applicable group health plan violations, the timely submission of the IRS form reporting such violations, and the timely payment of all applicable excise taxes; and

to the extent an employer's group health plan is administered by another entity (e.g., a third party administrator, an insurance company or a health maintenance organization), reviewing any agreement with such entity to see if any changes are needed to help ensure compliance with these new requirements.

 

Taxpayers Required To Comply With These New Requirements

The new self-reporting and excise tax payment requirements for certain group health plan violations generally apply to: (1) employers who sponsor a group health plan that is subject to the requirements described in the following paragraph ("Covered Health Plan"); (2) unions and other employee organizations who sponsor a Covered Health Plan; (3) third party administrators of Covered Health Plans (e.g., a third party administrator of a self-insured Covered Health Plan); and (4) certain other third parties who are responsible for providing benefits under a Covered Health Plan (e.g., insurance companies or health maintenance organizations).

Types of Violations That Are Covered By These New Requirements

Violations that must be reported include a failure to comply with the following requirements:


COBRA Health Coverage Continuation Requirements -- Group health plans that are subject to COBRA are required to comply with certain coverage continuation requirements.

HIPAA Preexisting Condition, Creditable Coverage and Special Enrollment Requirements -- Group health plans that are subject to HIPAA are required to, among other things, comply with limitations on preexisting exclusions, certification of creditable coverage requirements, and special enrollment requirements.

HIPAA Nondiscrimination Requirements Based on Health Status Factors -- Group health plans that are subject to HIPAA are not allowed to discriminate based on a health status factor.

Genetic Information Nondiscrimination Requirement -- The Genetic Information Nondiscrimination Act ("GINA") prohibits, among other things, discrimination based on genetic information.

Mental Health Parity Requirements -- The Mental Health Parity and Addiction Equity Act imposes certain parity requirements between mental health benefits and medical/surgical benefits.

Childbirth Hospital Stay Requirements -- The Newborns' and Mothers' Health Protection Act imposes requirements regarding minimum hospital lengths of stay in connection with childbirth.

Health Coverage Continuation Requirements for Seriously Ill Higher Education Students -- Michelle's Law imposes certain health coverage continuation requirements for dependent university and college students with serious medical conditions.

Comparable Contribution Requirements for Health Savings Accounts and Medical Savings Accounts -- Health savings accounts ("HSAs") and Archer medical savings accounts ("MSAs") are subject to requirements that help ensure that comparable contributions are made for nonhighly compensated employees.

Excise Taxes That Apply To Such Violations

The applicable excise taxes vary depending upon the type of violation involved. An excise tax of $100 a day per affected beneficiary generally applies to a violation of the COBRA health coverage continuation requirements. An excise tax of $100 a day per affected individual generally applies to violations of: (1) HIPAA's preexisting condition, creditable coverage, and special enrollment requirements; (2) HIPAA's nondiscrimination requirements based on health status factors; (3) GINA's genetic information nondiscrimination requirement; (4) the mental health parity requirements; (5) the childbirth hospital stay requirements; and (6) the health coverage continuation requirements for seriously ill higher education students. A violation of the comparable contribution requirements for HSAs and MSAs generally will be subject to an excise tax of 35 percent of the aggregate amount contributed to the HSAs or MSAs for all employees within the applicable calendar year.

IRS Form That Must be Filed If a Violation Occurs

If a violation of one of the requirements described above occurs, the applicable employer generally will be required to report that violation on IRS Form 8928 and will be required to pay the applicable excise taxes. If a COBRA health coverage continuation requirement is involved, the applicable third party administrator or insurer could be responsible for filing Form 8928 and paying the applicable excise taxes. If a violation occurs with respect to a multiemployer plan, the plan will be responsible for filing Form 8928 and paying the applicable excise taxes.

Deadline For Filing the Required IRS Form and Paying the Applicable Excise Taxes

For all violations described above other than a violation of the comparable contribution requirements for HSAs and MSAs, a Form 8928 generally must be filed and the applicable excise tax generally must be paid by the due date for filing the federal income tax return for the applicable taxpayer. If a violation of the comparable contribution requirements for HSAs and MSAs occurs, a Form 8928 generally must be filed and the applicable excise tax generally must be paid by April 15th of the calendar year that follows the calendar year in which the violation occurred. Special requirements apply with respect to extensions, multiemployer plans, and multiple employer plans.

Exceptions To the Excise Tax Requirements

With respect to all violations described above other than a violation of the comparable contribution requirements for HSAs and MSAs, exceptions to the excise taxes apply:

if the responsible party did not know, and would not have known even if reasonable diligence had been exercised, that the violation existed; or

if the violation was due to reasonable cause and not willful neglect, and was corrected within 30 days after the first day the responsible party knew, or exercising due diligence, would have known that the violation had occurred (the violation will be considered corrected if the violation is retroactively undone to the extent reasonably possible and the affected individual is put in a financial position as beneficial as the individual would have been in had the violation not occurred).

If a violation of the comparable contribution requirements for HSAs and MSAs occurs, the IRS can waive the excise tax if it is excessive and the failure is due to reasonable cause and not willful neglect.

Penalties That Apply If These Filing and Excise Tax Requirements Are Not Satisfied

A failure to satisfy these filing and excise tax requirements could result in late penalties of up to 50 percent, and interest charges.

Effective Date of These New Filing and Excise Tax Requirements

These new filing and excise tax requirements apply to any Form 8928 that is due on or after January 1, 2010.

 
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President Signs 2010 Defense Appropriations Bill, Which Includes COBRA Subsidy Extension

Posted on December 22, 2009 by Amy Klein


On December 21, 2009, the President signed H.R. 3326, which includes the COBRA subsidy changes discussed in yesterday's blog entry. The enactment of this law means that by February 19, 2009, administrators of group health plans must issue a notice describing the COBRA changes to individuals who were eligible for the subsidy or who experience(d) a COBRA qualifying event at any time on or after October 31, 2009. This notice should describe:

  • The extension of the maximum COBRA subsidy period from 9 months to 15 months;
  • The extension to February 28, 2010, of the qualifying date for an involuntary termination entitling the COBRA qualified beneficiary to the COBRA subsidy as an "assistance eligible individual";
  • The right of qualified beneficiaries whose COBRA terminated after October 31, 2009 (due to failure to pay the higher COBRA premium) to reinstate coverage retroactively by paying the subsidized premium (the 35% amount) by February 19, 2010, or by 30 days after the notice is provided, whichever is later;
  • The right of assistance eligible qualified beneficiaries who paid the unsubsidized premium for COBRA for periods after October 31, 2009, to receive a refund or obtain a credit of the overpaid amount. (The administrator can choose the option it prefers: refund or credit).

Watch the U.S. Department of Labor website, www.dol.gov/cobra, for more information and, possibly, a model notice.
 

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2010 Defense Appropriations Bill Impacts COBRA Subsidy

Posted on December 21, 2009 by Amy Klein

On Saturday, the Senate passed the 2010 Defense Appropriations Bill, which contains an extension of the ARRA subsidy for COBRA continuation of health coverage. The Senate Bill is identical to the House Bill, and the President is expected to sign the bill this week. That signature date is important because it is the "enactment date," which drives some of the payment and notice requirements described below.
 

The Appropriations Bill does the following with respect to the 65% COBRA subsidy:

  • Individuals who are involuntarily terminated through February 28, 2010, will be eligible for the subsidy (the previous date was December 31, 2009);
  • The maximum subsidy period is extended to 15 months from the original 9 months; 
  • Individuals whose subsidized COBRA coverage has already ended (some may have ended during November, 2009) have 60 days from the date of enactment (or 30 days after the notice discussed in the next bullet point, if later) to pay the 35% subsidized premium amount and obtain retroactive coverage by the subsidized COBRA. If the full premium was already paid, the "overpayment" amount can be refunded or credited towards future coverage;
  • Within 60 days of the enactment of the law, Administrators of group health plans must provide a notice describing the foregoing to individuals who were eligible for the subsidy or who experienced a COBRA qualifying event at any time on or after October 31, 2009;
  • The bill also "fixes" a problem recently identified in Department of Labor Q&As: The subsidy will be available to individuals who have a COBRA qualifying event (involuntary termination) through February 28, 2010. The previous law said that a terminated employee had to be eligible for COBRA by the expiration date. This is a subtle difference, but it caused an earlier termination of the subsidy than had been contemplated by Congress.
     
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New York Insurance Law Changes Extend Continuation Coverage and Dependent Coverage Under Insured Medical Plans

Posted on September 10, 2009 by Darcie Falsioni

Governor Paterson recently signed legislation that will affect the administration of insured medical plans in New York State. The legislation generally extends the period that terminated employees may elect continuation coverage under an insured plan from 18 months to 36 months and requires medical insurers to offer continued coverage to employees’ unmarried children through age 29, regardless of financial dependence. Each aspect of the new legislation is explained below.

 

Extension of Continuation Coverage (“mini-COBRA”) in New York

The New York Insurance Law provisions that govern continuation coverage (so-called “mini-COBRA”) generally extend federal COBRA-like continuation coverage requirements to employers with insured group health plans covering less than 20 employees in New York. However, under the recent changes to the New York mini-COBRA requirements, all employers, regardless of size, must make continuation coverage in an insured medical plan available to New York employees for up to 36 months following the date of the qualifying loss of coverage. For employers subject to federal COBRA, this change will require an additional 18 months of continuation coverage to be provided under New York mini-COBRA, once 18 months of federal COBRA is exhausted.

This extension of the continuation coverage period from 18 months to 36 months applies to group hospital, surgical and other medical expense insurance contracts (including those contracts issued by not-for-profit corporations and health maintenance organizations (“HMOs”)) that are issued, renewed or amended on or after July 1, 2009. The extension does not apply to self-insured group health plans (including health flexible spending accounts and similar benefits paid from an employer’s general assets). The extension also is not applicable to dental, vision or employee assistance programs, as the New York mini-COBRA provisions do not apply to those types of programs.

Employers that sponsor insured medical plans that are (or will be) affected by the extension should check with the plans’ insurance providers to review the implementation of the extension. Among the implementation issues to discuss are whether individuals who are already on continuation coverage when the insurance contract renews or is amended will be entitled to extended coverage and how notification of the additional continued coverage period will be provided. Affected plan sponsors should amend the COBRA provisions in affected plans and summary plan descriptions (“SPDs”) to reflect the continuation coverage extension. Likewise, COBRA notices should be reviewed and amended as appropriate.

Employers should also be aware of the potential cost impact on experience-rated insurance contracts. Additional claims experience, due to continued coverage, could cause insurance premiums to rise.

Coverage of Dependents Through Age 29

Under the new legislation, health insurance providers must allow an unmarried child of an insured employee to continue health insurance coverage through age 29, regardless of financial dependence. The child must live, work or reside in New York (or the service area of the insurer), and must not be eligible for another employer-sponsored medical plan or be covered by Medicare.

Extended coverage through age 29 is effective for insurance contracts issued, renewed or amended on or after September 1, 2009 (including not-for-profit corporations and health maintenance organizations (“HMOs”)). Children whose coverage terminated prior to the effective date of the legislation may elect prospective coverage during the 12-month period after the effective date.

Unlike the mandatory extension of the mini-COBRA continuation coverage period, an employer that sponsors an insured health plan is not required to amend its plan to extend coverage through age 29, or to subsidize the coverage beyond the age limitation set forth in the plan. Rather, this extension is triggered when the child ceases to be an eligible dependent under the plan, and works much like COBRA continuation coverage – the child must elect the coverage and is responsible for full payment of any required premium. The child must elect coverage within 60 days of termination of coverage, or during the annual enrollment period. Coverage will terminate when the child ceases to satisfy the eligibility requirements, or fails to pay the required premium within the 30-day grace period.

As with the extension of the mini-COBRA continuation coverage period, the changes to the dependent coverage rules do not apply to self-insured group health plans, health flexible spending accounts or similar reimbursement plans, or to dental, vision or employee assistance programs.

Employers that sponsor insured plans that are (or will be) affected by the new dependent coverage rules should consider whether affected plans should be amended to change the plans’ definition of covered “dependent.” An insurance carrier must allow an employer to purchase a policy to cover dependents through age 29. Affected employers that extend employer-provided dependent coverage through age 29 under the plan, or that otherwise subsidize extended dependent coverage, also should be aware that employer-provided coverage for an employee’s child who is no longer a “dependent” for federal income tax purposes will result in imputed income for the employee (generally equal to the employer subsidy).

As with the extension of mini-COBRA, premiums on experience-rated insurance contracts may rise due to continued coverage and claims experience.


 
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