COBRA Changes Are Still in the Making
Recent changes in the COBRA law will affect the way employers manage payroll and COBRA benefits,” said Keith Strodtman, senior vice president and general manager, Ceridian HRO and Product Management. In the coming days IRS and related agencies will be spending considerable time drafting, finalizing, and publishing the regulations and related documentation and forms required to support these changes.
President Obama signed the legislation on Tuesday, February 17, 2009. While the American Recovery and Reinvestment Act of 2009 will take affect on March 1, 2009, federal agencies required to write the new rules and regulations will have a reasonable time to implement the significant new changes.
Some of the Act’s changes include the following:
• Making Work Pay tax credit -- The maximum annual Making Work Pay tax credit is $400 for single filers, $800 for married couples filing jointly. This table assumes that the employee claims Single, with 1 allowance, on Form W-4 and the credit is implemented effective May 1, 2009.

The following chart lists the estimated increase per weekly paycheck at the following annual salaries or weekly wages:

$20,000	$384	$11.60
$50,000	$961	$11.60
$85,000	$1,634	$8.40
$100,000	$1,923	No change

The calculations are fairly straightforward for single employees with only one employer. But the IRS needs to provide further clarification about applying the credit when an employee works for more than one employer or for married couples filing jointly with only one household income.

A key change to COBRA includes a maximum nine-month, 65% subsidy for eligible individual COBRA premiums. The subsidy is available to those terminated involuntarily from their jobs from September 1, 2008 through December 31, 2009. Guidance on all COBRA changes is expected within 30 days of enactment from the Department of Labor and the IRS. For more information, visit www.ceridian.com.
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COBRA Subsidy Calculator
EHealthInsurance is offering a COBRA subsidy calculator at COBRALearning.com. Consumers input the total cost of their COBRA premiums and calculate their out-of-pocket costs for COBRA after they receive their 65% subsidy. Consumers can input basic information (gender, date of birth, zip code) to view anonymous quotes on private health insurance alternatives to COBRA. The website provides scenarios of when COBRA or individual health insurance would be the best option for a consumer:
Customer A -- COBRA is the best option. The single 45-year old to 55-year old diabetic man lives in New York: It’s extremely difficult to qualify for individual health insurance if you have a pre-existing health condition like diabetes. New York is a “guaranteed issue” state, which means you can’t be denied coverage due to a pre-existing health condition. However, any individual policy you purchase in a guaranteed issue state would have costs comparable to what you would get with COBRA and there are no subsidies available for individual market policies.
Customer B -- Getting COBRA for herself and individual policies for her husband and children is the best option for this 35-year-old to 45-year-old married woman with three kids. The policyholder takes medication for mild anxiety and depression. Her spouse and children are healthy. They live in Texas. Getting a COBRA policy for her entire family may average $1,100 or more per month or $385 after the subsidy. If she insures herself with COBRA, she’s likely to pay closer to $140 a month after the subsidy. Assuming that the rest of her family is in good health, she could insure them all with a family plan for as little as $120 a month. This mix & match strategy can save her $125 or more per month on premiums.

Customer C -- Getting an individual health policy is the best option for a single 25-year-old to 36-year-old California man with a few minor back problems, but nothing serious.

In California, the average adult will pay $380 on COBRA per month, which equates to $133 per month after the subsidy. Individual health insurance policies from name-brand carriers can start at around $65 per month for young, healthy adults. An individual health insurance policy can provide quality coverage and save him as much as $70 or more a month over subsidized COBRA premiums.

Chris Hakim, director, COBRA solutions at eHealthInsurance explains, “Even in this difficult economic environment, it is important that consumers research all of their health insurance options and get covered. Continuing your health insurance through COBRA is often the best health insurance option, but that’s not always the case. People living on unemployment benefits and struggling to make ends meet may find more cost-effective health insurance coverage in the private market.” For more information, visit www.ehealthinsurance.com.
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IRS Information Helps Employers Claim COBRA Medical Coverage Credit
The Internal Revenue Service released new detailed information to help employers claim credit for the COBRA medical premiums they pay for their former employees.
The new information, at www.IRS.gov, includes an extensive set of questions and answers for employers. The Website contains a revised version of the quarterly payroll tax return that employers will use to claim credit for the COBRA medical premiums they pay for their former employees.

Form 941, Employer’s Quarterly Federal Tax Return, will also be sent to about 2 million employers in mid-March. The form is used to claim the new COBRA premium assistance payments credit, beginning with the first quarter of 2009.

“This is the first step in our effort to provide employers with information on this important health benefit for people who have lost their jobs. We will continue our work in the weeks ahead to help employers implement this crucial change for the nation’s unemployed,” said IRS Commissioner Doug Shulman.
Employers must maintain supporting documentation for the credit claimed including the following:
• Documentation of receipt of the employee’s 35% share of the premium.
• In the case of insured plans: A copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier.
• Declaration of the former employee’s involuntary termination.
The new COBRA subsidy provisions also apply to insurers required to offer continuation coverage under state law similar to the federal COBRA. For more information about COBRA payments and the new law, visit www.dol.gov.
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COBRA Changes Under The American Recovery And Reinvestment Act
Employee Benefits Law Group sent out the following Benefits Law Alert. Government representatives have explained that, although the Act states that insurance companies providing insurance for group health plans will be entitled to reimbursement of the COBRA subsidy, the employer (and not the insurance company) generally will be entitled to the reimbursement. To comply with the COBRA subsidy provisions of the Act, employers will need to make significant changes immediately. A brief summary of some of the relevant provisions follows.

Amount of Subsidy: the amount of the subsidy is 65% of the COBRA continuation coverage premiums for eligible individuals for a maximum of 9 months. IRS/Treasury representatives have stated, on an informal basis, that their interpretation of the Act is that the subsidy will be calculated based on the premium the employee is actually charged by the employer instead of the maximum COBRA premium the employer could charge the employee.

Who is Eligible for COBRA Subsidy: If an employee is involuntarily terminated during September 1, 2008 to December 31, 2009, that individual (and dependents) may be eligible for the COBRA subsidy. However, the amount of the subsidy is reduced if the individual’s modified adjusted gross income exceeds $250,000 (for joint return filers) or $125,000 (for all other filers). The subsidy is completely eliminated if the person’s modified gross income exceeds $290,000 (for joint filers) and $145,000 (for all other filers).
A person who was terminated involuntarily before the date the Act was signed and who declined COBRA coverage will need to again be given the opportunity to elect COBRA coverage. If that person now decides to elect coverage, then the maximum COBRA period would be measured from the original date the person was eligible for COBRA coverage.

Notices: employers must modify their COBRA election notices or provide separate, supplemental notices to all people who become entitled to elect COBRA through December 31, 2009. The new notices must describe the new premium subsidy as well as any rights to change coverage options. On March 17, the government issued model notices. The employer must provide new notices within 60 days after February 17, 2009 for people who became entitled to elect COBRA before the Act’s enactment date. Failure to do so could result in monetary penalties under ERISA and the Internal Revenue Code.

How the Subsidy Works: although the text of the Act is not clear, government representatives said the following reimbursement rules will generally apply:
• The employer will be entitled to the COBRA subsidy reimbursement for a single employer plan that is subject to COBRA.
• The multi-employer plan will be entitled to the COBRA subsidy reimbursement.
• The insurance company providing the insurance will be entitled to the COBRA subsidy reimbursement for an insured plan not described above (where continuation coverage is provided pursuant to state law, e.g., a state law applicable to employers with fewer than 20 employees.)

The reimbursement will be accomplished through reducing payroll taxes that the entity receiving the reimbursement owes. If the reimbursement is greater than the payroll tax due for that period, the excess reimbursement will be treated in the same manner as a refund or a credit due for overpayment of payroll taxes. The IRS will have to provide additional guidance on how exactly this reimbursement process is to work. The IRS will have to provide guidance on how the reimbursement process will work with respect to reimbursement of multi-employer plans.
A person can appeal a denial of the subsidy request with the DOL. The DOL must rule on the request within 15 business days.

The COBRA provisions in the Act will require significant and immediate changes by sponsors of group health plans. As mentioned above, additional guidance will need to be issued by the various federal government agencies. However, sponsors do not have the luxury of waiting until that guidance is issued before implementing the new COBRA rules. For more information, call David Sawyer at 412-594-5642 (or dsawyer@tuckerlaw.com).
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Stimulus Package Could Create Multiple Payroll and Benefit Challenges for Small Businesses
The stimulus package will require employers to implement multiple changes to their tax withholding, reporting, and record-keeping procedures for employees, according to an analysis by Paychex. The following provisions may have a significant affect on businesses:
• Premium Assistance for COBRA recipients -- COBRA beneficiaries pay only 35% of their premiums while their employers pay the remaining 65%. Employers are reimbursed for their portion of the premiums through a credit on payroll taxes.
• Making Work Pay -- Gives workers a rebate/credit for the 2009 and 2010 tax years of the lesser of $400 for individuals and $800 for couples, or 6.2% of earned income. Workers will get the credit in their net paychecks through adjusted tax withholding tables.
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COBRA Administration Blog
Benaissance launched a blog dedicated to supporting COBRA, HIPAA, and direct billing administrators. Contributing authors are experts in customer service, custodial cash management, COBRA regulations, and sales and marketing. For more information, visit www.benaissance.com.