As you know by now, the American Recovery and Reinvestment Act was signed into law on February 17, 2009.  Often times whenever sweeping legislation is enacted, insurance carriers interpret the same legislation in different ways.  As of the time of this distribution, we have been in touch with every one of our carriers and to date, no carrier has committed or released their final guidelines in writing yet.  However, Resource Brokerage did not want to delay getting our understanding of the legislation out in the field to give you the information that you need in order to be informed in case your clients should ask you questions. 

1. In terms of our industry, the components that will have the largest impact have to do with COBRA and premium assistance provisions of the law.  The bill mandates a new special election period for any eligible individual who did not elect COBRA during their original election period (subject to income limitations) who experienced an involuntary loss of coverage (except for cases of gross misconduct) from September 1, 2008 through December 31, 2009 on a COBRA mandated employer.
   
   
2. The law also requires employers to send out two new notices within 60 days of February 17, 2009 notifying terminated employees of their new COBRA requirements. The legislation states that the Federal government must release a model notice within 30 days of the passage of the law.  The first notice would be addressed to those who are subsidy-eligible and have already elected COBRA coverage (in essence, informing them of the newly introduced subsidy and how it works) beginning March 1, 2009.  The second notice would be addressed to those who experienced an involuntary termination of employment on or after September 1, 2008 informing them of the new opportunity to elect COBRA coverage with federally subsidized premiums.  Employees will have 60 days after the date of receiving the employer’s notice to decide whether or not to elect COBRA coverage on a go-forward basis.  For those individuals terminated after the new model notices are released, most likely these additional notification requirements can be met by modifying existing COBRA forms to address these new requirements.
   
   
3. Premium assistance—In conjunction with the legislation, it provides a Federal subsidy of 65% for up to 9 months of coverage for those that elect coverage.  Under this provision of the law, beneficiaries will be able to elect or continue their COBRA coverage while paying only 35% of the premium (the premium subsidy is not included in the gross income of the beneficiary).  The employer will be responsible for paying the remaining 65% of the premium to the insurance carrier but will be able to deduct that payment off their payroll taxes.
   
   
4. Effective date of COBRA elections—In the event that an employee elects coverage as a result of the “new election period” (as created by this law), he/she would only be eligible for the remaining months of COBRA from the qualifying event.  (For example, if the person exercised their COBRA election as a result of this legislation and 3 months transpired since the termination, they would only be eligible for the remaining 15 months of COBRA coverage).    Additionally the legislation says that the coverage is only required go effective on a go-forward basis-- not retro to the original termination date (or September 1,2008).  It is anticipated that carriers will use 3/1/09 as the default date.  
   
    
5. Creditable coverage—The law has specific provisions to address the potential exposure of the 63‑day break in coverage.  The time beginning the date of the qualifying event (for those terminated on or after September 1, 2008) and ending on February 16, 2009 will not be counted for purposes of determining the 63-day break in coverage.  In essence, if a terminated employee elected coverage as a result of this legislation that would go into effect on a go-forward basis, the corresponding break would not be considered a break in coverage (from a creditable coverage standpoint) as long as the COBRA takes affect within 63 days of the passage of the legislation.
   
   
6. Disqualification of premium assistance—
   • When the beneficiary becomes eligible under another group health plan or Medicare.  Note:  The legislation is explicit on the date of ELIGIBILITY, not enrollment.
   • The beneficiary’s original COBRA eligibility period ends before the full 9 months is up.
     
     COBRA-qualified beneficiaries who do not notify the group health plan that they have become eligible for other coverage face a 110% subsidy penalty as of the subsequent plan’s eligibility date.
     
     
7. Income limitations for subsidy—Single individuals with incomes above $125,000 (or $250,000 filing jointly) would not be eligible for the full Federal subsidies.  Individuals who earn $145,000 (singly) to $290,000 (filing jointly) will be eligible for a prorata subsidy.

We have noted that some legal opinions interpret that this subsidy DOES apply to Illinois continuation (groups less than 20), several have remained silent on that specific aspect.  We will keep you posted as we hear more!

This review is meant for Resource Brokerage, LLC brokers only and is provided for broker informational purposes only and is not intended to be quoted or relied upon as legal or tax advice. 

Resource Brokerage, LLC | 1501 East Woodfield Road, Suite 110E | Schaumburg, IL 60173-4945
phone: (800) 605-7566 | fax: (847) 605-1494
www.resourcebrokerage.com