1. The COBRA Changes in the American
Recovery and Reinvestment Act of 2009

2. COBRA Changes in the ARRA
g
The American Recovery
and Reinvestment Act of
dR i t tA t f
2009 (H R 1)
(H.R.
COBRA Administration Changes
March,
M h 2009
COBRAGuard, Inc.
Mission,
Mission KS

3. SPEAKERS
Kenneth A. Mason
Partner, Spencer, Fane, Britt, & Browne, LLP.
p
KMason@spencerfane.com
Robert A. Meyers, Jr.
y
President & CEO, COBRAGuard, Inc.
Rmeyers@COBRAGuard.net
Michael S. Gallagher
VP, National Accounts, COBRAGuard, Inc.
MGallagher@COBRAGuard.net

4. OVERVIEW
American Recovery and Reinvestment Act (ARRA)
provides federal subsidy equal to 65% of COBRA
premiums for involuntarily terminated employees.
Subsidy will be available for up to 9 months.
ARRA enacted on February 17, 2009, with the
subsidy generally available as of March 1, 2009.
Employees terminated as l
El i d long ago as SSeptember 1
b 1,
2008, will be eligible for the subsidy, which will
require the p
q provision of retroactive notices to these
individuals.

5. ELIGIBILITY FOR SUBSIDY
Employees involuntarily terminated between September 1,
2008, and December 31, 2009.
Must be eligible for -- and elect -- COBRA coverage (or similar
state-law continuation coverage, if employer has fewer than
20 employees).
Subsidy also available to terminated employees’ covered
dependents.
Subsidy phased out for employees with adjusted gross
incomes of $125,000 to $145,000 ($250,000 to $290,000 if
filing joint return).

6. COVERED PLANS
Subsidy applies to all employer-sponsored
plans to which COBRA applies (medical
(medical,
dental, vision, and prescription drug).
Only health flexible
O l h lth fl ibl spending accounts are
di t
excluded.
No exemptions f governmental employers
for
or voluntary (non-ERISA) plans.

7. MAXIMUM SUBSIDY PERIOD
Subsidy available for up to 9 months (although maximum
COBRA coverage period is still 18 months following
termination of employment).
py )
9-month period measured from later of loss of regular
coverage or March 1, 2009 -- even if termination of
employment was prior to this date.
Eligibility for subsidy lost if individual offered other employer
group health coverage or eligible for Medicare benefits -- even
if not enrolled in plan or entitled to Medicare.
Eligibility for subsidy not lost if offered only dental or vision
coverage, flexible spending account, employee assistance
plan, or on-site medical clinic.

8. CALCULATION OF SUBSIDY
Maximum subsidy equals 65% of total
COBRA premium (including 2%
administrative fee).
But federal subsidy applies only to portion of
COBRA premium not subsidized by
employer.
Example: Total COBRA premium is $800,
but employer pays 50% of premium under
severance policy. So federal subsidy would
be only 65% of $400 or $260
$400, $260.

9. SUBSIDY MECHANICS
If qualified beneficiary pays 35% of applicable premium,
employer must pay other 65%.
Employer may recover the 65% through a credit against
payroll tax liability (including income tax withholding and
both employer and employee shares of FICA).
If subsidy exceeds payroll tax liability, employer may
liability
obtain payment from federal government under rules
applicable to overpayment of payroll taxes.
Under multiemployer plan plan must provide and then
plan,
recover subsidy.
Under small insured plan (not subject to federal
COBRA), insurer must provide and recover subsidy.
), p y

10. TRANSISTION RELIEF
If plan is not able to implement subsidy procedures
by March 1st, may continue to collect full COBRA
1st
premium for months of March and April.
Must then either (1) credit 65% subsidy amount for
() y
these months against future COBRA premiums or
(2) refund amounts to COBRA beneficiaries.
Amounts not fully credited within 180 days must be
refunded within 60 days.

11. NOTICE OBLIGATIONS
COBRA election notices must describe premium
subsidy and enclose forms needed to establish
y
eligibility.
Must also send notice to all employees terminating on
or after September 1, 2008 – whether voluntarily or
p , y
involuntarily – along with forms needed to establish
eligibility for subsidy.
Deadline for providing retroactive notice is 60 days
p g y
after enactment date, or approximately April 18, 2009.
Government to issue model notice by March 19, 2009.

12. RETROACTIVE COBRA
ELECTIONS
Any eligible individual whose involuntary termination of
employment was on or after September 1, 2008, but before
February 17, 2009, may elect COBRA coverage at any time
17 2009
up to 60 days after receiving retroactive notice.
COBRA coverage would then be effective as of March 1,
2009, d b
2009 and be available f up t remainder of 18
il bl for to id f 18-month period
th id
(measured from termination of employment).
Subsidy would be available for up to 9 months after March 1,
2009.
Any gap in coverage must be disregarded when identifying a
63-day gap in coverage that would cause loss of p
yg p g prior
creditable coverage (for preexisting condition purposes).

13. OTHER CONSIDERATIONS
No subsidy available if an individual is not
entitled to COBRA – e.g., if terminated for
gross misconduct.
i dt
Individual may not claim health coverage tax
credit for any month in which this subsidy is
received.
COBRA beneficiary receiving subsidy must
notify plan upon b
if l becoming eligible f other
i li ibl for h
coverage or Medicare (may be assessed
penalty of up to 110% of subsidy if notice is
not provided).

14. OTHER CONSIDERATIONS
Government will resolve dispute as to employee’s
eligibility for subsidy within 15 days after
employee’s request (replacing plan’s claims and
appeals procedures for this purpose).
Employer may – b t need not – allow subsidy-
El but dt ll b id
eligible individual to elect COBRA under any other
plan covering active employees, so long as the
COBRA premium for that coverage does not
exceed the premium for the individual’s pre-
termination coverage
coverage.

15. EMPLOYER NEXT STEPS
Identify all covered employees terminating
employment on or after September 1, 2008 –
py p ,
including their covered dependents.
Determine which of these employees terminated
involuntarily.
involuntarily
Coordinate with COBRA administrator and payroll
service provider.
p
Review existing severance arrangements for
possible revisions needed to allow terminated
employees to receive this subsidy
subsidy.

16. INELIGIBLE INDIVIDUALS
A subsidy is not available if an individual is not entitled to
COBRA – e.g., if terminated for gross misconduct.
No subsidy available if an individual’s event was due to;
Voluntary Termination; Reduction in Hours; Divorce or
Dissolution of Marriage; Loss of Dependent Status under
the Plan; Death of Employee
Individual may not claim health coverage tax credit for any
month in which this subsidy is received.
COBRA beneficiary receiving subsidy must notify plan upon
becoming eligible for alternative coverage or Medicare (may be
assessed penalty of up to 110% of subsidy if notice is not
provided).

17. PAYROLL TAX CREDITS
The employer recoups the subsidy by claiming credits equal
to the subsidy against their payroll tax deposits (filed on the
the
th new 941 F Form, LiLines 12 and 12b)
12a d 12b).
http://www.irs.gov/pub/irs-pdf/f941.pdf
No payroll tax credits may be taken until the reduced
premium (35%) h b
i has been received f
i d from eligible i di id l
li ibl individuals.
The “Attestation of Involuntary Termination”, including
the date of the involuntary termination (which must be
during the period from Sept 1 2008 to Dec 31 2009) for
1, 31,
each covered employee whose involuntary termination is
the basis for the eligibility for the subsidy.
Information on the Receipt, including dates and amounts,
of the assistance eligible i di id l ’ 35% share of th
f th it li ibl individuals’ h f the
premium.

18. PAYROLL TAX CREDITS
Insured Plans; copy of the invoice or other supporting
statement from the insurance carrier and proof of timely
py
payment of the full p
premium to the insurance carrier
required under COBRA.
Self-Insured Plans; proof of the premium amount and proof
of the coverage provided to the assistance eligible
individuals.
individuals
Proof of each assistance eligible individual’s eligibility for
COBRA coverage at any time during the period from
September 1, 2008, to December 31, 2009 and election of
p , , ,
COBRA coverage.
A record of the SSN’s (TIN’s) of all covered employees,
the amount of the subsidy reimbursed, and whether for 1
individual or 2 or more individuals

19. GETTING STARTED
Deadline for providing retroactive notice is 60 days
after enactment date, or approximately April 18,
2009.
Model Notices are due from the Department of Labor
by March 19, 2009.
Employers should be compiling lists of all of the
terminated people and their qualified beneficiaries
since September 1, 2008.
Establish procedures for “Attestation”, Election
tracking, payment certification, and to bill the eligible
individuals the 35% of the premiums they elect as well
as other methods/practices to report the eligible
individuals to the IRS as required.

20. END OF SUBSIDY
When Will the Subsidy End?:
When the individual becomes eligible for alternative
coverage. (How will we know?)
The individuals nine months ends.
The individual’s COBRA coverage ends.

21. WATCH OUT
Watch out for wrong or mis-leading information!
Anything published or distributed before February 17 17,
2009 is likely to be wrong and/or incomplete. Discard any
materials that you have with prior dates.
Examples-
E l
Over 55 - 10 year eligibility provision did not make it.
Re-opening claims back to September 1, 2008 is not
part of the new law
Subsidy is 65% for 9 Months ; NOT 50%/12 or
60%/12

22. PENALTIES
Employers failing to comply are subject to the
same COBRA penalties f
lti for non-compliance as
li
before $110 per day per individual up to $220 per
day.
y
COBRA participants eligible for the subsidy are
subject to a 110% penalty if they become eligible for
alternative coverage or Medicare and fail to notify
the employer or administrator.
py

23. SUMMARY
The ARRA was enacted February 17, 2009.
It has been 14 days since the ARRA was signed into
Law.
We all have until April 19 to get it together, and get
the
th new notices ( hi h h
ti (which have not b
t been written yet) i
itt t) in
the mail.

24. QUESTIONS
Mike has been compiling some questions as you have submitted them,
let’s review some now to attempt to provide some answers to your
questions.
Thank you for taking time to join us today.
We want to thank The Detroit Regional Chamber of Commerce.
For more information, contact us on line at www.COBRAGuard.net
As a Special Promotion, anyone who attends today’s Webinar can
receive a FREE Subscription to www.COBRAAnswers.com check your
email for details!