The following Question and Answer (Q&A) material is a follow up to the Webinar presented by Kauff McGuire & Margolis LLP and Singer Nelson Charlmers. Watch the full webinar video here. This information is based on the information that was recently released by the Department of Labor and the IRS and will be reviewed if additional guidance is issued. Want to learn more? Contact Singer Nelson Charlmers now.

Q1: Is there any specific report that the employer should provide to The Department of Labor or the Internal Revenue Service on ARRA in order to get credit for it towards payroll taxes?

A1: The COBRA subsidy amount is reimbursed by being claimed as a credit on IRS Form 941, Employer's Quarterly Federal Tax Return.  IRS Form 941 has been revised to allow for this credit.

Q2: Since the month of March is already finishing can individuals who dropped or didn't elect COBRA coverage and now decide to get it under ARRA start their coverage in April 1, 2009 or is the employer mandated to start coverage as of 3/1/09?

A2. The effective date for coverage during this special election period begins with the first period of coverage beginning on or after the enactment date (2/17/09) which is generally March 1, 2009 for groups with 1st of the month coverage.

Q3: What about an employee who was terminated after 2/16, who was already sent a continuation notice, and who has not yet responded?  Which notice would apply?

A3: The Extended Election Period Notice would be required to be sent.

Q4: If we already sent out our own notifications earlier in March, do we need to resend these official notices?

A4: That will depend on what was included in the notices that you sent prior to the release of the Department of Labor's Model Notices.  You will need to review your notices to determine if all of the same required information was included on them; otherwise, we suggest that you send the applicable Model Notice to each COBRA beneficiary as required by ARRA.

Q5: Does dental and vision have to be bundled with medical insurance in order to receive 65% for dental and vision?

A5: As long as the COBRA beneficiary was enrolled in both medical, dental and vision on the day before the qualifying event date (termination date), all three plans are eligible for the premium subsidy.

Q6: We have AETNA and our terminated employees are set up for Home Billing. Who pays the 65%?

A6: Since Aetna is administering the COBRA process for you, you should contact them directly to ensure that they are following the guidelines as established by ARRA. 

NOTE: The payroll tax credit may be claimed by whichever entity is paying the 65% of the premium, which can be:
(1) a multiemployer group health plan,
(2) an employer maintaining a group health plan that is subject to Federal COBRA continuation coverage requirements or that is self-insured, or
(3) an insurer providing coverage under a plan not included in (1) or (2).
Only this person is eligible to offset its payroll taxes by the amount of the subsidy.

Q7: How is the credit for the premium reduction entered on to the IRS Form 941 if you have a payroll provider who does our payroll taxes, such as ADP?

A7: You will need to contact your payroll provider and ask what procedure they have established to fill out the IRS Form 941 to obtain the subsidy.

Q8: If we have employees who resigned and received their COBRA notice and declined do we need to notify them again?

A8: Yes, you will be required to send them the Extended Election Period Form so that they will be notified about the premium subsidy and have another opportunity to elect COBRA.

Q9: You've mentioned "repayment of premium assistance" by eligible individual how this would work?

A9: If an individual's modified adjusted gross income for the tax year in which the premium assistance is received exceeds the income levels set forth in ARRA, the individual will be required to repay the premium assistance through their income tax.

Q10: Do notifications go to qualified beneficiaries terminated after September 1, 2008 whether the termination was involuntary or voluntary?  Or is it just involuntarily terminated employees who get the notice?

A10: The Department of Labor requires that notices be sent to ALL employees whose employment was terminated after 9/1/08, regardless of reason for termination.

Q11: If someone was terminated for cause and not a layoff would that person be covered under ARRA?

A11: Yes, because a termination for cause is still an involuntary termination.  The Department of Labor requires that notices be sent to ALL employees whose employment was terminated after 9/1/08, regardless of the reason for termination...  A determination will then be made as to whether or not these individuals are Assistance Eligible Individuals who are entitled to the premium subsidy.

Q12: What if employee was responsible for 100% of dental and vision because company did not pay for it when they were employed?

A12: Dental and vision coverage are eligible for the premium subsidy, even if they were completely paid for by the employee.

Q13: Can you give a summary of when responses and payments would be due for 3/09 coverage if we send an extended election period notice?

A13: The notices must be sent out no later than April 18, 2009.  The COBRA beneficiary then has 60 days from the date of the notice to decide whether to elect COBRA continuation.  Once an election is made, they have an additional 45 days to remit payment.

Q14: I was told that in order for a terminated employee to receive the 65% dental insurance it must be bundled with medical insurance to receive the 65% subsidy, is this not correct?

A14: Each coverage, medical, dental and vision is eligible for the premium subsidy separately. 

Q15: I'm a little confused on the General ARRA notice and the Extended notice.  Does that mean some people will have to get BOTH notices?

A15: No.  The General notice (full version) goes to those individuals whose employment has been terminated but who have not yet received a COBRA notice.  The Extended Election Period notice goes to those individuals whose employment was terminated between 9/1/08 and 2/16/09 who already received their original COBRA notice and either did elect COBRA continuation or elected and then later discontinued coverage.  The General notice (abbreviated version) goes to those individuals whose employment was terminated after 9/1/08 who elected COBRA and still on it.

Q16: If a person is put on a reduction of hours, rendering the person ineligible for health insurance coverage from the company because they are now working part time, are they eligible to continue coverage on COBRA with the subsidy?

A16: Although the individual is eligible for COBRA continuation due to a reduction in hours (making them ineligible for benefits), they are not eligible for the premium subsidy because their employment hasn't been terminated. 

Q17: If you use a TPA (Third Party Administrator) for administration and notification of COBRA, will the TPA be responsible to send the notification to the eligible individual or does the employer send notices directly to the eligible individual?

A17: As the employer, you are ultimately responsible to ensure that all Qualified Beneficiaries are sent the required notices.  You should contact your TPA to ensure this is being done.

Q18: Could you clarify it again, if someone had medical insurance and waived dental coverage at the time they were employed would they be eligible to take dental now through COBRA?

A18:  No. You can only elect coverage that was in place upon termination of employment.

Q19: If someone is on FMLA and is due to return in May and decides not to return for the balance of the school year and the school has opted not to renew the employee for September do they qualify?

A19: Yes. The option not to renew the employee would be considered an involuntary termination.

Q20: Must each member of the family get a separate notice?

A20: Yes - each Qualified Beneficiary must receive a separate notice.

Q21:To confirm, a terminated employee may choose to continue dental and vision and not medical insurance?
 
A21: Yes, that is correct.

Q22: If an employee left in March and received a COBRA notice, what do I now send?

A22: You would send the Extended Period Election notice since they were already sent a COBRA notice.  Anyone terminated after 2/16/09 that has not been sent a COBRA notice, should be sent the General Notice (full version).

Q23: If someone is currently in an extended coverage period (i.e., divorced spouse, disabled, etc.) through COBRA, can or will this further extend that period?

A23: No.  ARRA does not extend the period for COBRA continuation.

Q24: Are employees who are terminated for gross misconduct covered by ARRA?

A24: If a terminated employee is eligible for COBRA continuation, the employee would be eligible for premium subsidy under ARRA.  An employee terminated for gross misconduct is generally not eligible for COBRA continuation.

Q25: What happens if someone elects COBRA coverage, we then advise the carrier of their election and begin to pay premiums, but the premium is never paid by the employee? Does the carrier refund the premiums that were paid to them and cancel the coverage retroactively?

A25: You will be required by the insurer to reinstate and pay the full monthly billed premium once the person makes their election for continuation.  As with the current COBRA process, failure to remit the premium would result in termination of coverage back to the reinstatement date and you would request a refund from the insurer. 

Q26: Is a qualified beneficiary only the family members covered by family coverage while the person was an active employee?

A26: Yes, unless there is a subsequent qualifying event. (e.g., the birth of a new child)

Q27: In the event of a death of the primary insured, who was Medicare eligible but worked full time and utilized the company's medical as primary coverage, after the death of the primary Medicare eligible, can the dependent spouse, who is also Medicare eligible, continue on COBRA with subsidy?

A27: The spouse of a deceased employee who is eligible for Medicare would not be considered an Assistance Eligible Individual and would be ineligible for the premium subsidy. 

Q28: If an employer pays health insurance premiums for a few months following an involuntary termination as part of a severance package, how does that affect the 9 month period of reduced premiums?

A28: According to new guidelines recently released by the IRS (2009-27), the effect on the 9 month reduced severance period will depend on the how the employer treats its provision of health coverage during the severance period.  If the employer treats its provision of health coverage during the severance period as deferring the employee's loss of insurance coverage (as long as the employer's plan allows coverage for terminated employees and the coverage provided during the severance period is the same as that for active employees), the nine month period will not begin until the employer stops providing coverage under the severance package.  If, however, the employer considers its provision of health coverage under the severance package to be part of its COBRA obligation (e.g., the severance package says the employer will pay for three months of "COBRA coverage"), then the loss of coverage will begin as soon as the employer begins providing for health coverage following the termination, and the nine months will run from that date.

For example:
An individual is involuntarily terminated from employment on May 15, 2009.  Health coverage in connection with the May 15 termination would normally end on May 30, 2009.  However, the employee's severance package includes three months of health coverage, at the same level as active employees, for which the employer pays the entire insurance premium and the employee does not pay any portion of the premium, running from June 1, 2009 to August 31, 2009, under a health insurance plan which allows coverage for terminated employees.  If the employer considers no loss of coverage to have occurred until the three months of severance benefits have been exhausted, the nine months of premium subsidy will not begin to run until September 1, 2009, when the employee has to start paying insurance premiums to maintain COBRA continuation coverage, and will end on May 31, 2010.

If, however, the employer treats the three months of premium payments under the severance package (June, July and August) as part of the employer's obligation to provide COBRA continuation of coverage (and/or the plan does not provide coverage for non-active employees), the loss of coverage, and the nine months, will begin on June 1, 2009.  In this scenario, because the employee is not paying any premium for the first three months of coverage, the employee will only have six months of premium subsidy available when the employee begins paying the premium on September 1, 2009, and the nine month period will be over on February 28, 2010.

Q29: For terminated employees, who did not elect COBRA, is the 18-month continuation period effective from their date of termination or is it 18 months from the effective date of the ARRA Act, March 1, 2009?

A29: The COBRA continuation period is 18 months from the original qualifying event (e.g., termination of employment). The Extended Election Period provided by ARRA does not extend the COBRA continuation period, it only allows those who did not elect COBRA when they were first offered the opportunity to elect, or those who elected coverage but have since discontinued COBRA coverage, a second opportunity to elect COBRA and receive the premium subsidy for up to 9 months.

Q30: How long is the ARRA Act in effect?  When will it expire?  Will this apply to any future terminations?

A30: It will apply to involuntary terminations that occur between 9/1/08 through 12/31/09.  The subsidy is available to an Assistance Eligible Individual for up to 9 months following the employee's date of termination.  Therefore, an employee whose employment is involuntarily terminated in December 2009 would be eligible for premium assistance for nine months, through September 2010.  An employee whose employment is terminated after 12/31/09 will not be eligible for the premium subsidy.