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The COBRA Subsidy: What it is and what to do Michael Tomasek, Partner, Ungaretti & Harris LLP Derek Wright, Benefits Consultant, Northern Insurance Service,

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Presentation on theme: "The COBRA Subsidy: What it is and what to do Michael Tomasek, Partner, Ungaretti & Harris LLP Derek Wright, Benefits Consultant, Northern Insurance Service,"— Presentation transcript:

1 The COBRA Subsidy: What it is and what to do Michael Tomasek, Partner, Ungaretti & Harris LLP Derek Wright, Benefits Consultant, Northern Insurance Service, LTD.

2 + Assists clients in the development of all types of employee benefit plans and other arrangements including: + employment + consulting + buy-sell and severance agreements + resolution of complex legal issues relating to employee benefit plans and matters where employment laws and employee benefit issues overlap Mike Tomasek Partner, Employee Benefits and Executive Compensation

3 + Innovator in the employee benefits marketplace + Partners with organizations to develop and implement programs that increase profitability while allowing organizations to meet strategic objectives and improve employee satisfaction + Works with business owners, finance, and human resource executives to maximize the return on investment in employees Derek Wright Benefits Consultant, Northern Insurance Services

4 Background +What is COBRA? +State Continuation Coverage in Illinois +American Recovery and Reinvestment Act of 2009

5 The ARRA Subsidy Provisions +Premium Reduction – How much? ▪ 65% of amount charged to former employee ▪ Beware of employer-subsidized COBRA – Duration ▪ Available for individuals involuntarily terminated from September 1, 2008, through December 31, 2009 ▪ Lasts until earlier of nine months or expiration of maximum continuation coverage period

6 The ARRA Subsidy Provisions +Eligibility – Former employees and family members of employees terminated as a result of an “involuntary termination” – Termination due to “gross misconduct” may disqualify an otherwise qualified beneficiary from receiving COBRA coverage +“Involuntary” termination – Termination from employment, not coverage – Events like divorce and dependent aging out do not qualify – Severance from employment due to employer action when employee is willing and able to continue performing services

7 The ARRA Subsidy Provisions – Death, illness and disability are not involuntary terminations – Employer’s failure to renew contract may qualify – Termination due to resignation for good reason (material negative change) may qualify – Reduction in hours to zero qualifies; reduction to more than zero may be good reason – Retirement can be involuntary termination if employee knows dismissal would occur in absence of retirement – Strike-no; lockout-yes – Facts and circumstances

8 Income Limitations +Subsidy is available to all previously described +Government will recapture the subsidy through the tax return process as follows: – Individuals with AGI of up to $125,000 have no recapture – Joint filers with AGI of up to $250,000 have no recapture – Partial recapture applies to individuals earning between $125,000 and $145,000 and joint filers earning between $250,000 and $290,000 – Persons subject to recapture must repay at income tax payment time – Waiver of subsidy is expressly permitted

9 Notices +Content of required notice: – Any forms necessary for establishing premium reduction eligibility – Contact information for plan administrator and any other having relevant information – Description of the extended COBRA period – Obligation of qualified beneficiary to notify plan of subsequent coverage and a description of the 110% penalty for failing to do so – Prominent description of subsidy eligibility – Description of option to enroll in other coverage

10 Notices +Notices must be provided to: – All qualified beneficiaries associated with any employee who terminates employment for any reason from September 1, 2008, through December 31, 2009 – Notice to employee and spouse residing at same address should suffice for the family

11 Notices +DOL has promulgated model notices – General notice ▪ Full version –Includes all COBRA election information and COBRA subsidy information –Intended to cover those not receiving COBRA who terminate from September 1, 2008, through December 31, 2009 ▪ Abbreviated version –Includes only subsidy information –Designed for those who are currently covered under COBRA

12 Notices – Alternative notice ▪ Designed to be issued to individuals eligible for state law continuation coverage. Must be tailored to state requirements ▪ BCBS letter to employers – Notice related to extended election period ▪ Designed to provide notice of “second bite at the apple” and subsidy provisions to those who terminated employment from September 1, 2008, through February 16, 2009, and either did not elect COBRA or dropped COBRA

13 Notices +Timing – Notice of extended election period must be provided by April 18, 2009 – Notices related to other provisions should be provided as soon as possible or consistent with COBRA notice timing rules if notice provision period has not yet expired

14 Subsidy Denials / Expedited Review +ARRA provides for “expedited review” of subsidy denial – e.g., involuntary nature of termination disputes – DOL must make determination within 15 days after receipt of review application – Reviewing court must give deference to DOL determination – DOL is currently setting up the review process

15 Recouping Premium Reduction Subsidy Money +Employers providing COBRA coverage are responsible for obtaining subsidy reimbursement +Insurers are responsible for obtaining subsidy reimbursement for state coverage plans +Recovery of subsidy is payroll tax offset and is done through Form 941 reporting +No other information is required at this time

16 Further Information

17 Special Offer +Free outsourced COBRA administration for one year

18 Q&A

19 For More Information Michael F. Tomasek Ungaretti & Harris LLP Derek Wright Northern Insurance Services Ltd

20 The COBRA Subsidy: What it is and what to do Michael Tomasek, Partner, Ungaretti & Harris LLP Derek Wright, Benefits Consultant, Northern Insurance Service, LTD.


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