Beranbaum Menken LLP Blog

The Stimulus Bill’s Impact on Employment Law, Part 1 of 2

The American Recovery and Reinvestment Act of 2009, commonly referred to as the “stimulus bill,” was signed into law by President Obama on February 17, 2009. Its clearly economic provisions have garnered widespread attention, but less ink has been devoted to the aspects that impact employment law.  Today’s post will cover changes to COBRA.

Prior to enactment of the stimulus bill, COBRA entitled eligible employees to elect 18 months of post-termination coverage, but the employees had to shoulder the full amount of their premiums as well as a 2% administrative fee. Under the new law, eligible employees who sign up for COBRA will have to pay only 35% of their premiums, and the federal government will reimburse employers or health plans via a payroll tax credit for the remaining 65%, for up to nine months.

• Have been or will be involuntarily terminated between September 1, 2008, and December 31, 2009. The term “involuntary termination” is not defined in the bill.
• Are not eligible for another group plan, such as Medicare or a spouse’s plan.
• Earn less than $145,000 for individuals and $290,000 for families. Technically, such employees (known as “high-income individuals”) are eligible, however they will later be required to repay the subsidy as an additional tax for the year in which the subsidy was provided. This “recapture tax” phases in between $125,000 and $145,000 in adjusted gross income for singles and between $250,000 to $290,000 for married couples filing jointly. A plan administrator must allow a high-income individual to permanently waive the subsidy (in the manner to be prescribed by the Secretary of the Treasury) and pay the full COBRA premium.
• Either previously elected COBRA, or elect COBRA coverage during the new special election period (discussed below).

• The special election period began on February 17, 2009 and ends 60 days after an employee not currently receiving COBRA coverage receives notice of his or her eligibility for coverage. (The notice requirements are discussed below.) Ordinarily, this election period will end 120 days after the stimulus bill’s February 17, 2009 enactment date.
• If an employee elects COBRA coverage during the special election period, that employee’s coverage begins on the first day of the first COBRA coverage period beginning after February 17, 2009 (March 1, 2009 for group health plans using calendar months as COBRA coverage periods). Coverage is not retroactive to the date that the employee originally lost coverage.
• COBRA coverage for an employee who elects COBRA during the special election period will not go beyond the period of COBRA coverage that would have been required if COBRA had been initially elected (i.e. 18 months minus any time the employee may have received COBRA coverage prior to election during the special period).

How does the special COBRA election period affect the pre-existing condition exclusion?

The Health Insurance Portability and Accountability Act (HIPAA) limits the ways in which insurance plans can exclude coverage of pre-existing medical conditions. When joining a new plan, an individual’s pre-existing condition may only be excluded if the individual received medical advice, diagnosis, care or treatment for that condition within six months of enrollment in the new plan. The exclusion can also only apply for the first twelve months that an individual is enrolled in a new plan.

Furthermore, HIPAA provides that if an individual moves to the new plan within sixty-three days of terminating the previous coverage, and had continuous health insurance for at least twelve months prior to terminating coverage, the new plan cannot exclude pre-existing conditions at all. Thus, any person with previous qualifying coverage who has exhausted COBRA coverage (if it was available) has a sixty-three-day window in which to enroll in a new plan without a pre-existing condition exclusion being invoked.

Under the stimulus bill, if an employee elects COBRA coverage during the special election period, the period of time between when the employee first became eligible for COBRA coverage (but didn’t elect it) and when he or she begins receiving coverage (i.e. the first day of the first COBRA coverage period after February 17, 2009) is disregarded when determining if the employee had a sixty-three-day break in coverage. In other words, an employee who elects coverage during the special period will be deemed to have had continuous coverage for purposes of pre-existing condition exclusions. The deadline for such an employee to enroll in a new plan without facing pre-existing conditions exclusions will thus not come up until after sixty-three-days after the employee’s COBRA coverage expires.

• One notice must go to all employees who currently have COBRA continuation coverage, to advise them of the availability of the subsidy and the requirements to qualify for the subsidy. This notice must also be given to any eligible employee who is involuntarily terminated between now and December 31, 2009.
• The other notice must go to any employee who currently lacks COBRA coverage but is entitled to the special election period. The notice to these individuals must advise them of the availability of the subsidy and the requirements to qualify for the subsidy, as well as provide them forms necessary for electing COBRA during the special election period.

How is the 65% subsidy applied?

• The COBRA subsidy applies to general health insurance plans only, not to dental or vision-only plans, counseling plans, or health care flexible spending account.
• The subsidy applies only if 35% of the premium is paid by the employee or on the employee’s behalf by someone other than the employer. The employer cannot claim a subsidy credit until the group health plan has actually received 35% of the COBRA premium. In other words, the employer can only claim a subsidy credit of 65% of what the total COBRA premium would be if the amount actually paid by the employee was 35% of the total COBRA premium.
• If the employer pays 100% of the employee’s COBRA premium, the employer cannot claim any subsidy credit for that employee.
• The subsidy applies to periods of COBRA coverage beginning after February 17, 2009. A “period of coverage” is the monthly (or shorter) period for which COBRA premiums are charged. For group health plans using calendar months as the period of coverage, the subsidy applies beginning March 1, 2009.
• The subsidy ceases to apply, and a plan administrator may again charge the full COBRA premium, as of the earliest of:

1.  Nine months after the first day of the first month to which the subsidy applies; or
2. The end of the maximum COBRA coverage period required by law (i.e. 18 months), including permissible early terminations; or
3. For an employee who elects COBRA during the special enrollment period, the end of the maximum COBRA coverage period that would have applied if the employee had elected COBRA coverage when first entitled to do so; or
4. The date the employee becomes eligible for coverage (not actually covered) under another group health care plan (other than plans providing only dental, vision, counseling, or a health care flexible spending plan) or Medicare coverage. The stimulus bill requires an employee who becomes eligible for coverage under another group health plan to notify the plan providing COBRA coverage in writing. Failure to do so results in a penalty to the employee of 110% of the subsidy provided after the date the employee became eligible for the other coverage.

Changes to unemployment insurance and whistelblowing protections to follow in a later post….