COBRA, also known as the Consolidated Omnibus Budget Reconciliation Act, is the law that allows former employees to purchase their company's health insurance plan for 18 months if they pay the premiums. If you thought you were exempt from this requirement because the original law only applied to companies with more than 20 employees, listen up. The new legislation that became part of the American Recovery and Reinvestment Act (ARRA) effective February 17, 2008, makes a provision that applies to state continuation plans such as the one we have in New Jersey. In layman’s terms, all businesses with more than 2 employees will be required to offer terminated employees the right to continue their coverage and if they qualify will have to pay 65% of their premiums beginning March 1, 2008. The subsidy lasts for a period of 9 months.
New Subsidy for COBRA Beneficiaries
ARRA provides for premium reductions and additional election opportunities for health benefits under COBRA. Eligible individuals pay only 35% of their COBRA premiums and the remaining 65% is reimbursed to the coverage provider (the employer or insurer) through a tax credit. If the credit amount is larger than the taxes due, the employer will be reimbursed by the Secretary of the Treasury. For insured plans, not subject to Federal COBRA, where the insurer is collecting the premium, the insurance company will be entitles to the reimbursement through a corresponding credit to its own payroll taxes. There are also filings that payers receiving the subsidy must make with the Secretary of the Treasury.
The New Jersey Dept. of Banking and Insurance is working on a provision that will allow the insurance companies to handle this subsidy. We will keep you posted on their progress. Meanwhile, the employer will be responsible for paying the carrier.
Beneficiaries must notify the employer in writing if they become eligible for other coverage under a group major medical health plan or Medicare. There are substantial penalties if they do not.
Eligibility for the Subsidy
Not everyone is eligible for this premium reduction. They must meet the following requirements:
• Involuntarily terminated from employment on and after September 1, 2008 for reasons other than gross misconduct
• Not be eligible for other group health coverage (such as through a spouse's plan or a new employer’s plan) or for Medicare.
• Individuals earning more than $145,000 (or $290,000 for joint filers) must return the subsidy when they file their taxes
• For those earning between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers) a proportional amount of the premium reduction must be repaid
Electing a Different COBRA Option
While the old COBRA rules would not allow a terminated employee to move to a less costly plan, if the employer offered more than one plan option, this new legislation permits but does not require the employer to allow assistance eligible individuals to switch the coverage options. To retain eligibility for the ARRA premium reduction, the different coverage must have the same or lower premiums as the individual’s original coverage. The different coverage cannot be coverage that provides only dental, vision, health flexible spending account, or coverage for treatment that is furnished in a on-site-facility maintained by the employer.
Notifying Terminated Employees
Any employee terminated between September 1, 2008 and February 16, 2009 will have to be offered the right to accept these benefits (again) with the subsidy. They must be notified of the subsidy and opportunity to elect coverage within 60. The election period for those beneficiaries will begin on the date of enactment and end 60 days after. The Dept of Labor will be issuing sample notices employers can use within the next 30 days.
Failure to provide notices would be subject to penalties of up to $110/day. Additionally, there could be adverse tax consequences under the IRS code which can impose excise taxes of $100/day per notice on the plan administrator.
Logistics
ARRA requires the employer to collect only the 35% of the COBRA or continuation premium from the terminated employee. They will pay the remaining 65% and obtain a reimbursement from the Federal Government when they file Form 941, Employer’s Quarterly Federal Ta Return to report their COBRA premium assistance payments. If the credit amount is larger than the taxes due, the employer will be reimbursed by the Secretary of the Treasury.
Employers must maintain supporting documentation in order to receive the credit:
• Documentation of receipt of the employee’s 35% share of the premium
• A copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the carrier
• Declaration of the former employee’s involuntary termination
Please email your questions to: pgoldfarb@ebagroup.net
Monday, April 6, 2009
New COBRA Legislation Effects Employers with Less Than Twenty Employees
Should Our Health Care System be run by the Government or Private Industry?
It’s no secret that our health care system is failing. Ever increasing costs and a growing number of uninsured or under insured make it clear. The issue of reforming our nation’s health care system will dominate much of the policy debate in 2009 and beyond. This system, which accounts for 16 percent of our economy, produces hundreds of life-saving marvels every day, yet fails to provide affordable health care for all Americans (mathmatica.com).
While consuming more resources per capita than any other health care system in the world, our system yields outcomes that are often worse than those of other countries and well below our own expectations and what seems possible. These tensions have led to broad-based public interest in finding ways to improve the quality, efficiency, affordability, equity, and financing of health care. We have been hearing a lot about the Obama administration’s goal to reform health care in order to provide affordable universal coverage. There are many issues:
• Making coverage available to all
• Affordability
• Uniformity of care
• Rationing of care
• Availability of physicians
• Who should administer health care; the government or private industry
• Integrating technology to reduce costs
How it is achieved is the topic of many debates. One issue is central to almost all the debates—should the government take over the administration of health care or should we leave it in the hands of private industry.
Those on the pro-government side cite that health care has become increasingly unaffordable for businesses and individuals. We can eliminate wasteful inefficiencies such as duplicate paper work, claim approval, insurance submission, etc.
That free medical services would encourage patients to practice preventive medicine and inquire about problems early when treatment will be light; currently, patients often avoid physicals and other preventive measures because of the costs. We can develop a centralized national database which makes diagnosis and treatment easier for doctors.
Opponents to this approach point out that there isn't a single government agency or division that runs efficiently; do we really want an organization that developed the U.S. Tax Code handling something as complex as health care? "Free" health care isn't really free since we must pay for it with taxes and this may lead to reductions in funding for important areas such as education or defense. In addition, healthy people who take care of themselves will have to pay for the burden of those who smoke, are obese, etc. Changing to a government run system will result in a long, painful transition taking place. It will involve lost insurance industry jobs, business closures, and new patient record creation. The loss of private practice options and possible reduced pay may dissuade many would-be doctors from pursuing the profession.
The Meadowlands Regional Chamber has always advocated for the small employer both in Trenton and Nationally. We want to know what you think. Here is your chance to make your voice heard.
