New model COBRA notices under ARRA's federal subsidy
March, 2009
On March 19, 2009, the Department of Labor (DOL) issued Model COBRA Notices relating to the federal subsidy under the American Recovery and Reinvestment Tax Act of 2009 (ARRA). The ARRA provisions relating to the new federal subsidy were the subject of a previous eAlert, "New mandatory COBRA payment and notice requirements."
The DOL has provided 4 forms of Model COBRA Notices:
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a General Notice (Full version);
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a General Notice (Abbreviated version);
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an Alternative Notice; and
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a Notice in Connection with Extended Election Period
The DOL provides a brief description of each Notice and a link to the forms themselves at: http://www.dol.gov. The DOL designed each model notice for a particular group of qualified beneficiaries under the ARRA.
In general, the plan administrator (the employer is generally the plan administrator for a single-employer plan) must send the Notices. However, in the case of a state mini-COBRA program ("State Programs"), the issuer of the group health plan must provide the election notice within the time frame specified under state law. State Programs typically apply to small employers with 2-19 employees. With regard to the Alternative Notice in connection with the State Programs, the DOL provides on its website that the "insurance issuers that provide group health insurance coverage must send the Alternative Notices to persons who became eligible for continuation coverage under a State law."
Under State Programs it is also the issuer providing group health insurance coverage that receives the payroll tax credit once the qualified beneficiary pays their 35% portion of the premium; the employer or group health plan cannot receive the tax credit under State Programs. While the ARRA provides the opportunity for qualified beneficiaries of State Programs to receive premium assistance for up to 9 months and to switch to other coverage offered to active employees as permitted by the employer (provided that the new coverage is no more expensive than the prior coverage), the ARRA does not change any State Program. Thus, if state law provides only a 10-day period for election of continuation coverage under its State Program, that period is not changed by the ARRA. Similarly, if a State law only provides for a 6-month maximum length of continuation coverage under its State Program, that length of coverage is not changed by the ARRA. While beneficiaries of State Programs are not eligible for the extended election period provided under the ARRA for those who experienced an involuntary termination from September 1, 2008 through February 16, 2009, a state may choose to provide for an extended election period under its State Program for individuals involuntarily terminated during that time frame.
Since state laws vary in connection with their mini-COBRA laws, DOL reminds issuers to modify the model notice as necessary to conform to applicable state law. The DOL further points out that in certain situations the General Notice (Abbreviated version) may be more appropriate than the Alternative Notice. The DOL also advises employers and employees to contact their relevant State Department of Insurance with respect to these matters.
In connection with the Model Notices, the DOL also updated its FAQs For Employers About COBRA Premium Reduction Under ARRA http://www.dol.gov/ebsa/faqs/faq-cobra-premiumreductionER.html, as well as its FAQs For Employees About COBRA Premium Reduction Under ARRA http://www.dol.gov/ebsa/faqs/faq-cobra-premiumreductionEE.html.
The IRS has updated its COBRA information as well, see COBRA: Answers for Employers http://www.irs.gov/newsroom/article/0,,id=204708,00.html. This page provides links to expanded and updated Q&As that are also now categorized by Administration and Eligibility, Form Preparation, Reporting and Documentation, and Taxability and Recapture.
If you are interested in learning about the provisions in the American Recovery and Reinvestment Tax Act of 2009 or would like assistance in implementing any aspect of the COBRA subsidy program please contact the Employment or Tax Group at Bullivant Houser Bailey PC at 1.800.654.8972.
Circular 230 Compliance: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.