- COBRA Extension Notices Due To Some Qualified Beneficiaries No Later Than January 30, 2010
- February 22, 2010 | Authors: Sarah Lockwood Church; Paul A. Kasicky; Kristen Belz Ornato; Kevin A. Wiggins
- Law Firm: Thorp Reed & Armstrong, LLP - Pittsburgh Office
As we previously informed you in our prior communiqué, the COBRA premium reduction provisions originally passed under the American Recovery and Reinvestment Act of 2009 (“ARRA”), were amended by provisions in the Department of Defense Appropriations Act, 2010 (“2010 DODA"), signed into law on December 19, 2009. The provisions in the 2010 DODA expanded the so-called COBRA premium reduction or COBRA subsidy in two ways.
- First, any Qualified Beneficiary who loses coverage due to an involuntary termination of employment between September 28, 2008 and February 28, 2010 may be eligible for the subsidy and, if so, is called an “Assistance Eligible Individual.” (Under the original subsidy provisions provided under ARRA, the subsidy eligible involuntary termination had to occur on or before December 31, 2009.)
- Second, the COBRA subsidy has been expanded to a period of up to fifteen (15) months, rather nine (9) months. Under ARRA, the COBRA subsidy would have started no earlier than March, 2009 and could have continued only until the end of November, 2009.
- Note that neither ARRA nor 2010 DODA provides an extension of an individual’s overall period of COBRA coverage - just the right to pay a reduced premium for a period of time. For example, the eighteen (18) month COBRA coverage period for individuals who were terminated as early as September 28, 2008 would generally run through March, 2010.
Unfortunately, the expansion of the COBRA subsidy also means that plan sponsors must update their COBRA notices
In addition to updating their notices, each plan sponsor must also try to identify the Qualified Beneficiaries that must receive each notice. Failure to timely provide these new notices could subject plan sponsors to a new excise tax, detailed more fully below.
Premium Assistance Extension Notices
Under ARRA, the initial nine-month COBRA subsidy essentially began on March, 2009 and, absent 2010 DODA, would have expired at the end of November, 2009. Assistance Eligible Individuals who were scheduled to lose their COBRA subsidy in November may have dropped their COBRA coverage at the end of November when the subsidy was supposed to expire. Others in this group may have paid the full COBRA premium for December (and/or January) in order to continue their coverage. You must provide these Assistance Eligible Employees (i.e. those whose eligibility for the COBRA subsidy expired due to the end of the initial nine-month COBRA subsidy period) with a Premium Assistance Extension Notice which informs them of their right to make a retroactive reduced payment to take advantage of the new extended coverage period of fifteen (15) months.
You must send the Premium Assistance Extension Notice to all Assistance Eligible Individuals whose ARRA premium reduction (COBRA subsidy) period would have ended November 30, 2009 (absent 2010 DODA) by January 30, 2010.
Importantly, Assistance Eligible Individuals who may have dropped COBRA due to the anticipated expiration of the subsidy can now elect to restore COBRA coverage retroactively to December 1, 2009. There is also an extended grace period for them to pay the required reduced premiums for retroactive coverage. Payment to reinstate coverage retroactively will be due February 27, 2010, or, if later, thirty (30) days after you provide the Premium Assistance Extension Notice to them. For this group of Assistance Eligible Individuals who have continued COBRA coverage but paid the full COBRA premium for December and/or January, there is now an opportunity to have amounts already paid credited against future subsidized COBRA payments. For purposes of this communiqué, these individuals would be considered “in transition.”
You must also inform any other Assistance Eligible Individual of their right to the additional six (6) months of subsidized COBRA coverage. For these Assistance Eligible Individuals, you would also provide the new Premium Assistance Extension Notice. For example, an employee involuntarily terminated in July, 2009 would be eligible for the ARRA nine-month COBRA subsidy, which subsidy would end in April, 2010, absent 2010 DODA. Now, that Assistance Eligible Individual can pay a reduced COBRA premium through October, 2010.
For these Assistance Eligible Individuals, the new Premium Assistance Extension Notice must be provided no later than February 17, 2010.
In addition, all qualifying beneficiaries who had a qualifying event on or after October 31, 2009 should receive a Premium Assistance Extension Notice if they did not receive the updated new General Notice, described below.
New General COBRA Notice
There is also a new General Notice. This is your new COBRA notice that must be provided to all qualified beneficiaries who experienced a qualifying event on or after September 1, 2008 through February 28, 2010, unless they have already been provided notice of their rights. (Generally, someone who was eligible for the COBRA subsidy under ARRA, had already received the ARRA notice, but failed to elect COBRA before their COBRA election period expired, would not need to receive a new Notice.) Note: You must provide this new General Notice to all qualified beneficiaries - not just those individuals that you believe were terminated involuntarily and might be eligible for the COBRA subsidy. You need to provide the new General COBRA Notice to this group within the normal timeframe for providing COBRA notices generally. This group of individuals will then have sixty (60) days from the date the updated new General COBRA Notice is mailed to them to elect COBRA coverage. This means that individuals with qualifying events during November or December, 2009, and whose COBRA election period has not yet expired should receive a new General Notice.
The last new notice is called an Alternative Notice, which is used for plans that are not subject to federal COBRA, but are governed by state continuation coverage laws. This would replace the Alternative Notice some plan sponsors may have used during 2009.
Penalties and Self Reporting for Failure to Comply
Effective January 1, 2010, the IRS has implemented new reporting and excise tax requirements for failure to comply with COBRA and other health and welfare plan rules.
Employers, third party administrators and insurers must now self report (i.e., file an IRS Form 8928, discussed below) and pay excise taxes for failing to comply with COBRA, HIPAA Portability, GINA, Mental Health Parity, Newborns’ and Mothers’ Health Protection Act, Michelle’s Law, as well as the comparable employer rules applicable to Health Savings Accounts (HSA) or Archer Medical Savings Accounts (Archer MSA), among others. While these provisions included excise tax penalties for violating their provisions, employers had little guidance on how to report or pay these penalties.
Note: There is limited relief for unintentional violations. However, the IRS has not provided guidance on the situations to which such relief would apply.
The new regulations clarify that the parties must file a Form 8928 and pay the excise tax on or before the due date for its federal income tax return. However, in the case of a violation of the comparability rules related to HSAs or Archer MSAs the Form 8928 and payment of the excise tax must be made by April 15th of the year following the year in which the contributions were made.
Depending upon the reason for the reporting, the excise tax ranges from $100 per day per affected person or, in the case of a violation related to a HSA or Archer MSA, 35% of the aggregate employer contributions made to all HSAs or Archer MSAs.
Failure to timely report and pay the associated excise tax can result in the imposition of late penalties and interest. A penalty for a late return is generally equal to 5% of the amount due each month the Form 8928 is late up to a maximum of 25%. The penalty for late payment of the excise tax is equal to one half of one percent of the unpaid tax for each month the tax remains unpaid up to a maximum of 25%.