Updates on COBRA Premium Subsidy From the DOL and the IRS

On December 19, 2009, President Obama signed the Department of Defense Appropriations Act, 2010 (the "2010 DOD Act"), which extended the availability of the COBRA premium subsidy for assistance eligible individuals.  The Department of Labor ("DOL") has provided updated information regarding the COBRA premium subsidy on its website.  This information includes a revised Fact Sheet, FAQs for employees, updated posters and flyers, as well as revised model notices.  In addition, the Internal Revenue Service has clarified its earlier guidance regarding when an employer may claim the premium subsidy credit for COBRA coverage in a prior year where the subsidy is provided in the current year.  This Client Advisory summarizes the new guidance provided by the Department of Labor and the Internal Revenue Service.

An "assistance eligible individual" is any individual who experiences a qualifying event for COBRA continuation coverage, or under a state law that provides comparable continuation coverage (for example, the so-called "mini-COBRA" laws), due to a covered employee's involuntary termination at any time from September 1, 2008, through February 28, 2010, and who timely elects continuation coverage.  Please see our Client Advisory here for basic information about the COBRA premium subsidy extension.

UPDATED FACT SHEET:

The DOL has updated its Fact Sheet regarding the COBRA premium subsidy. Since the deadlines for providing notice of the premium subsidy extension, as well as for paying premiums for retroactive COBRA coverage, are triggered based upon the date the legislation was enacted, group health plan administrators should be aware of the following deadlines:

• Individuals who have exhausted their original nine-month COBRA premium subsidy will have an additional period of time to pay the premiums for the extension-related subsidy that were due prior to receiving notice of the COBRA premium subsidy extension and the ability to make retroactive premium payments.  Assistance eligible individuals must make retroactive premium payments by the latest of February 17, 2010, 30 days following receipt of notice of the ability to pay the retroactive premiums, or the end of the otherwise applicable payment grace period;
• An updated General Notice must be provided to all qualified beneficiaries (not just covered employees) who experienced any COBRA qualifying event after December 19, 2009 through February 28, 2010 (regardless of the type of qualifying event), within the normal timeframes for providing a COBRA election notice;
• A Premium Assistance Extension Notice must be provided by February 17, 2010 to individuals who were "assistance eligible individuals" as of October 31, 2009 (unless they are in a transition period as described below), and to individuals who experienced a termination of employment on or after October 31, 2009, and lost health coverage (unless they already were provided a timely, updated General Notice);
• A Premium Assistance Extension Notice must be provided to individuals who are in a "transition period" within 60 days of the first day of the transition period.  The transition period is a period that begins immediately after the end of the first nine-month premium subsidy for a given individual, as long as that individual is otherwise eligible for the subsidy extension.

A link to the Department of Labor's Fact Sheet on the COBRA Premium Subsidy may be found here: www.dol.gov/ebsa/newsroom/fscobrapremiumreduction.html.

UPDATED MODEL NOTICES:

On January 15, 2010, the DOL published updated model notices describing the extended COBRA premium subsidy.  Plan administrators and issuers should modify the updated model notices to conform to the terms of the applicable health plan and provide the notices in accordance with the notice guidelines described above.  Each model notice is designed for a particular group of qualified beneficiaries and contains information to help satisfy the extended COBRA premium subsidy notice provisions.

• UPDATED GENERAL NOTICE

This notice must be provided to all qualified beneficiaries (not just covered employees) who experience a COBRA qualifying event (and not just a termination of employment) through February 28, 2010, unless a proper notice describing the COBRA premium subsidy extension in the 2010 DOD Act has already been provided.  This model notice includes updated information on the premium reduction as well as information required in a regular COBRA election notice.

The DOL notes that individuals who experienced a termination of employment in December, 2009, but who were not eligible for COBRA coverage until January 2010, were likely not provided the updated notice. These individuals should get both the updated General Notice AND the full 60 days from the date the updated notice is provided to make a COBRA election.

• PREMIUM ASSISTANCE EXTENSION NOTICE

This is a new notice that plan administrators must provide to certain individuals who already have been provided a COBRA election notice that did not include information regarding the COBRA premium subsidy extension under the 2010 DOD Act.  The DOL notes that, to the extent that the groups listed above overlap creating a situation where an individual may be entitled to multiple notices, providing the Premium Assistance Extension Notice by the earliest date required will satisfy the notice requirement(s).

• UPDATED ALTERNATIVE NOTICE

This notice is required to be sent by insurance issuers that provide group health insurance coverage to persons who become eligible for continuation coverage under a state mini-COBRA 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 provide this notice in conjunction with the Premium Assistance Extension Notice or the updated General Notice, as appropriate.

A link to the Department of Labor's website containing the updated model notices may be found here: http://www.dol.gov/ebsa/COBRAmodelnotice.html.

IRS CLARIFIES FORM 941 GUIDANCE:

In addition, the Internal Revenue Service ("IRS") has recently clarified its position with respect to employers claiming the premium subsidy credit on Form 941 for premium assistance covering a prior-year period, where such assistance is paid in the current year (for example, where the employer receives the assistance eligible individual's portion of the premium payment in 2010 for a period of COBRA coverage that occurred in 2009).  Prior guidance on the IRS website (COBRA Questions and Answers: Form Preparation, Q&A-FP-15) stated that an employer was not required to claim the credit on Form 941 for the quarter during which the COBRA subsidy was actually provided, but could instead choose to claim the credit for a later quarter during the same calendar year or amend a previously filed Form 941 for the quarter during which the COBRA subsidy was provided, if it was provided in an earlier quarter.  In an email dated January 6, 2010, a senior tax analyst at the IRS addressed this guidance to make clear that, if an employer receives an eligible individual's 35% share of the COBRA premium in 2010 for a coverage period that occurred in 2009, the 65% subsidy credit can be claimed on Form 941 for either the quarter in 2010 in which the 35% premium payment was received or a later quarter in 2010, but not for the quarter in 2009 when the COBRA coverage occurred.  While this is not official guidance, it demonstrates the position that the IRS is likely to take if faced with similar facts in the future.

A link to the Internal Revenue Service's website containing COBRA Questions and Answers: Form Preparation, Q&A-FP-15 may be found here: http://www.irs.gov/newsroom/article/0,,id=205373,00.html.

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If you have any questions about this Client Advisory, please contact any member of our Employee Benefits Team.

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