Employment: COBRA Update - Notices to Qualified Beneficiaries Due By April 17, 2009
Last week, the Department of Labor issued new guidance on an employer’s obligations under the American Recovery and Reinvestment Tax Act (ARRA). With respect to ARRA’s changes to COBRA continuation coverage, it:
applies to persons involuntarily terminated from September 1, 2008, through December 31, 2009 (and their qualified beneficiaries)
provides a 65% government subsidy of COBRA premiums for up to 9 months for qualified persons
provides that employers must give certain persons notice of a special election period, whereby they can take advantage of the subsidy even if they had not previously elected COBRA coverage or if they had let their coverage lapse
Of course, as is true with all new laws, there is much more involved, and the Department of Labor and the Internal Revenue Service are continually issuing guidance. The DOL is hosting a Second Compliance Assistance Webcast on the COBRA subsidy to be held today, April 6, at 3 p.m. EDT. For more information, click here.
One of the most difficult aspects of the new law is the retroactive application. ARRA gave “second chance” rights to persons who were involuntarily terminated from September 1, 2009 (and their qualified beneficiaries), but who either did not elect COBRA or have since allowed their COBRA coverage to lapse. For these persons, an employer must provide notice of a special election period in which they get a second chance to sign up for COBRA coverage (with the subsidy).
Here are a few examples to illustrate (assuming 18 months is the applicable maximum COBRA continuation coverage period):
Example 1: Don is involuntarily terminated on September 30, 2008. He did not elect COBRA coverage. Under ARRA, the employer must provide notice to Don of the special election period in which he can now elect COBRA coverage. If he elects COBRA coverage, it begins March 1, 2009 (with the subsidy). However, the total COBRA coverage period of 18 months runs from September 30, 2008 (the date of the involuntary termination), and ends on the last day of March 2010. So, Don is eligible for 9 months of COBRA coverage at 35% (March through November 2009). He then may continue his COBRA coverage (without the subsidy) for December 2009 through March 2010 at the full COBRA rate.
Example 2: Ann is involuntarily terminated on November 30, 2008. Her total 18 month entitlement began to run as of November 30, 2008, the date of the involuntary termination, and expires 18 months later, or at the end of May 2010. In this example, Ann elects COBRA coverage for December 2008 and January 2009, but then let the coverage lapse. Her former employer must now send her a notice advising of the special election period. Ann would be eligible to begin COBRA coverage, with the subsidy, effective March 1, 2009. She is eligible for nine months of COBRA coverage with the subsidy (March through November 2009). From December 2009 through May 2010 (6 months), she remains eligible for COBRA continuation coverage at the full COBRA rate.
In the March Employer's Legal Resource and at our recent Employer's Legal Resource Workshop, we advised that a person involuntarily terminated between September 1, 2008, and March 1, 2009, who was not currently receiving COBRA coverage would receive both
a special election period (a new opportunity to elect COBRA coverage), and
an entirely new period of COBRA coverage (generally 18 months) which would begin March 1, 2009. This latter point was in error.
While it is true that a person involuntarily terminated from September 1, 2008, through the date of ARRA who is not already receiving COBRA will receive a special election period, the total COBRA coverage period still begins to run from the original termination date. In other words, this special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee's involuntary termination).
Bottom Line. The question that remains is: do you need to act now? Three scenarios exist.
You have not yet issued a notice to involuntarily terminated employees or their qualified beneficiaries. You need to issue the notices in compliance with ARRA, by April 17, 2009.
You have issued the notices already to the appropriate involuntarily terminated employees and their qualified beneficiaries using the DOL's model notice. You have met your ARRA obligations for providing notice.
You issued either (i) a notice other than the DOL's model notice or (ii) the DOL model notice with a cover letter which stated that this special election period extends the period of COBRA continuation coverage beyond the original maximum period. If this is the case, you should send a letter to those persons advising that the previous notice was incorrect and enclosing the applicable DOL model notice. This should be sent to applicable involuntarily terminated employees and their qualified beneficiaries on or before April 17, 2009.
It is our mission, our goal, and our job to get it 100% right, 100% of the time. It is also our job to let you know if we did not get it right, and to advise how to fix it. Unfortunately, we did err when we advised that the “second chance” could extend the maximum COBRA coverage period. We hope this has clarified your obligations under ARRA.
If you have any questions or would like to discuss this matter further, please feel free to contact me.
Kristen L. Brightmire
Employment Law Practice Group Leader