Federal COBRA Continuation Coverage Plans

The ARRA provides subsidies for “COBRA continuation coverage,” which is required by federal law for “group health plans.” A group health plan generally includes any plan sponsored by an employer or employee organization to provide health care.

The subsidy applies to health insurance (including self-insurance) and Health Reimbursement Arrangements (HRA). However, it does
not
apply to Flexible Spending Accounts (FSA) or Cafeteria Plans!


State Mini- COBRA Plans

Most states have “Mini-COBRA” plans that cover employers with fewer than 20 employees. The ARRA subsidy applies to State “mini-COBRA” plans if the coverage is comparable to COBRA.

Comparable continuation coverage does not include every State law right to continue health coverage. To be comparable, an eligible individual must generally have the right to continue coverage substantially similar to that provided under the group health plan at a monthly cost based on a specified percentage of the plan’s cost of providing such coverage, i.e., a limit on the premium.


What If the State Plan Varies in Length or Has Different Qualifying Events?

The fact that a state plan has a shorter or longer period of continuation coverage than the federal COBRA program does not disqualify the State program from being “comparable” for purposes of the subsidy. Likewise, the fact that the state plan applies different qualifying events does not make participants ineligible for the federal subsidy. The critical issue is how the premium is calculated.

Example

The State Mini-COBRA program in a particular state provides for a maximum of 6 months of continuation coverage(rather than 18 months under COBRA). The premiums, however, are the same as those paid for active employees. In addition, the State
requires that an employee be covered by the employer’s group health insurance program for a minimum of three months prior to the qualifying event in order to receive the State Mini-COBRA benefits.

Such a State program is treated as comparable continuation coverage for purposes of the ARRA and participants are eligible for the subsidy.

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September 1, 2008

To be eligible for the subsidy, an employee must be involuntarily terminated between September 1, 2008 and December 31, 2009. An employee involuntarily terminated before September 1, 2008, is not eligible for the subsidy, even if the employee’s COBRA coverage did not start until after September 1.

Example

An employee was laid off on June 15, 2008, but received severance pay, including health insurance benefits, through December 31, 2008. The employee is not eligible for the subsidy in March 2009. It is the date of involuntary termination that controls–in this case June 15, 2008.

February 17, 2009

This is the date the ARRA became law. Persons eligible for COBRA after September 1, 2008 and prior to February 17, 2008, who do not have it (even if they had it and dropped it), may elect COBRA during an extended enrollment period.

March 1, 2009

The first day of subsidy for most persons who had COBRA continuation coverage in effect on February 17, 2009.

December 31, 2009

This is the last day that an employee can be involuntarily terminated and still be eligible for the COBRA subsidy, unless the subsidy is extended by Congress.

September 30, 2010

The COBRA subsidy runs for nine months only, unless Congress extends the period of subsidy. Consequently, an employee who was involuntarily terminated on December 31, 2009 would be eligible for the COBRA subsidy through September 30, 2010.

Example

On December 15, 2009, an employee is involuntarily terminated and elects COBRA coverage that day. She will receive the subsidy for 9 months, until the earlier of August 15, 2010, or until she becomes eligible for other group health plan coverage or Medicare.

For purposes of the ARRA, the term “involuntary termination” means more than simply being laid off or downsized. An employee is considered to be involuntarily terminated if:

  • Layoff.The employee is laid off, regardless of whether or not the employee enjoys recall rights.

  • Other Suspension.The employee is suspended in some other fashion which results in the loss of group health insurance coverage.

  • Resignation-Transfer.The employee resigns as the result of a material chagne in the geographic location of employment. For example, an employee living and working in New York resigns rather than moving to California when her employer relocates.

  • Resignation–Hours Reduction.The employee resigns when the employee’s hours are cut sufficiently to constitute a “material negative change” in the employment relationshiip for the employee. A reduction from 40 hours per week to 35 hours per week is unlikely to be considered a “material negative change,” while a reduction from 40 hours per week to 40 hours per month would almost certainly constitute such a change. The range in between such extremes will be open to interpretation and likely litigation. A reduction of hours which does not constitute a “material negative change” does not make an employee eligible for the subsidy.

  • Retirement.An employee who retires in lieu of being terminated is deemd “involuntarily” terminated, if he or she knows that the only alternative to retirement is termination.

  • Strikes and Lockouts. If employees strike, they do not have any rights to COBRA continuation coverage or the subsidy. Their suspension from work is voluntary. However, if an employer engages in a lockout so taht employees cannot work, the employees are deemed “involuntarily” terminated.

  • Buyouts. If an employee accepts a “buyout” in return for a severance package, the employee will be considered terminated “involuntarily” if after some period of time at lest some employees not bought out will be terminated.

  • Discharge. If an employee is discharged because of an extended illness or disability or “for cause” because of poor performance, poor attendance, or some other reason, the employee is deemed to have been involuntarily terminated for purposes of the ARRA. However, if the discharge is for “gross misconduct,” then the termination is not a qualifying event and the employee is not eligible for COBRA continuation coverage or the subsidy.

What Is Gross Misconduct?

Gross misconduct includes “intentional, wanton, willful, reckless, or deliberate indifference to an employer’s interest” by the employee. Illegal or dangerous acts committed in the workplace (and sometimes those committed away from work) will likely constitute gross misconduct. Examples include a teacher engaging in sexual activity with minor students or an airline attendant striking a coworker during flight.

One of the provisions of the stimulus bill known as the American Reinvestment and Recovery Act of 2009 is the COBRA subsidy. The statute provides a federal subsidy for COBRA premium for employees involuntarily terminated from their employment, The new law was signed on February 1, 2009. It became effective for most employers with 20 or more employees on March 1, 2009. (Employees in states with Mini-COBRA statutes covering employers with fewer than 20 employees may also be eligible for the subsidy.)

The new law has three major components:

  1. The federal government will pay 65% of the COBRA premium for eligible individuals who were involuntarily terminated between September 1, 2008 and December 31, 2009.

  2. Persons who were terminated after September 1, 2008 but who did not elect COBRA coverage or elected it and then dropped it (perhaps for financial reasons) now will have an opportunity to elect COBRA and pay only 35% of the premium.

  3. Employers have the option to offer coverage other than that which the employee had immediately prior to termination. (This is contrary to the longstanding COBRA provisiions which give the employee the right only to continue what the employee already has.)

The subsidy is available to “assistance eligible individuals” (“Eligible Individual”). The subsidy is available to any “Assistance Eligible Individual” (“Eligible Individual”). An Individual is eligible if:

  1. S/he Is a “qualified beneficiary” (an employee, spouse, or dependent);

  2. The qualifying event was the “involuntary termination of employment” between September 1, 2008 and December 31, 2009;
  3. The Individual is eligible for COBRA continuation coverage (or comparable State Mini-COBRA coverage) at any time during that 16 month period; and

  4. The Individual elects the COBRA coverage.

Client Question: How will the ARRA affect groups under 20 employees covered by the State Mini-COBRA plan?
AnswerUnder Title III of the new American Recovery and Reinvestment Act of 2009 (ARRA), “assistance eligible” employees are entitled to a 65% subsidy for COBRA premiums for up to nine months. An assistance eligible employee is one who is (1) eligible for COBRA coverage, (2) elects such coverage, and (3) was involuntarily terminated from employment at any time on or between September 1, 2008 and December 31, 2009.

The Act defines “COBRA continuation coverage” as “coverage provided pursuant to [COBRA] or under a State program that provides comparable continuation coverage.” (emphasis added) It does not include coverage provided through a health flexible spending arrangement under a Section 125 cafeteria plan

Subsequent government publications have confirmed that that the extended COBRA benefits and subsidies under the American Recovery and Reinvestment Act of 2009 does in fact cover employers with fewer than 20 employees who are subject to a State program that provides coverage comparable to COBRA.

 

The American Recovery and Reinvestment Act of 2009, signed by President Obama on February 17, provides that the federal government will pay 65% of COBRA premiums for eligible COBRA participants who lose their jobs between September 1, 2008 and December 31, 2009. Employers have been awaiting the model notice from the Department of Labor to be  issued to eligible COBRA participants. The Model Notice (in alternative formats), has now been issued. The following is the formal announcement, which contains links to the notices..
COBRA Continuation Coverage Assistance Under The American Recovery And Reinvestment Act Of 2009
The American Recovery and Reinvestment Act of 2009 (ARRA) provides for premium reductions and additional election opportunities for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly called COBRA. Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. The premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months for those eligible for COBRA during the period beginning September 1, 2008 and ending December 31, 2009 due to an involuntary termination of employment that occurred during that period.
Individuals who request the premium reduction from their group health plan, but are denied may appeal to the Department. The Department is developing a process for reviewing denials and an official application form that must be used to file an appeal that will be available shortly.
NOTICES 
ARRA mandates that plans notify certain current and former participants and beneficiaries about the premium reduction.
The Department created model notices to help plans and individuals comply with these requirements. Each model notice is designed for a particular group of qualified beneficiaries and contains information to help satisfy ARRA’s notice provisions.
Plans subject to the Federal COBRA provisions must send the General Notice to all qualified beneficiaries, not just covered employees, who experienced a qualifying event at any time from September 1, 2008 through December 31, 2009, regardless of the type of qualifying event. This full version includes information on the premium reduction as well as information required in a COBRA election notice.
 The abbreviated version of the General Notice includes the same information as the full version regarding the availability of the premium reduction and other rights under ARRA, but does not include the COBRA coverage election information. It may be sent in lieu of the full version to individuals who experienced a qualifying event during on or after September 1, 2008, have already elected COBRA coverage, and still have it. 
Insurance issuers that provide group health insurance coverage must send the Alternative Notice to persons who became eligible for continuation coverage under a State law. Continuation coverage requirements vary among States, and issuers should modify this model notice as necessary to conform it to the applicable State law. Issuers may also find the model Alternative Notice or the abbreviated model General Notice appropriate for use in certain situations. 
Plans subject to the Federal COBRA provisions must send the Notice in Connection with Extended Election Periods to any assistance eligible individual (or any individual who would be an assistance eligible individual if a COBRA continuation election were in effect) who:
1. Had a qualifying event at any time from September 1, 2008 through February 16, 2009; and
2. Either did not elect COBRA continuation coverage, or who elected it but subsequently discontinued COBRA.
This notice includes information on ARRA’s additional election opportunity, as well as premium reduction information. This notice must be provided by April 18, 2009.