american recovery act 2009 broker final · divisions of health care service corporation, a mutual...

Blue Cross and Blue Shield of IllinoisBlue Cross and Blue Shield of New MexicoBlue Cross and Blue Shield of OklahomaBlue Cross and Blue Shield of Texas

Revision Date March 18, 2009

Divisions of Health Care Service Corporation, a Mutual Legal Reserve Company, an Independent Licensee of the Blue Cross and Blue Shield Association 1

COBRANew Subsidy ProvisionsWhat Do TheyMean for You?American Recovery and Reinvestment Act of 2009

Divisions of Health Care Service Corporation, a Mutual Legal Reserve Company, an Independent Licensee of the Blue Cross and Blue Shield Association

SME: Janice Knight, Vice President, Actuarial 3-2009

Good afternoon, I would like to welcome you to this discussion of the American Recovery and Reinvestment Act of 2009. In these hard economic times, this act will provide some relief to individuals who have lost their jobs and may not be able to afford to maintain their health insurance.




23/20/2009

This presentation should not be construed as legal advice.

23/20/2009

Overview

• Signed into law February 17, 2009

• Provides a 65% subsidy for COBRA– For those involuntarily terminated between 9/1/08 and 12/31/2009

– For coverage months on or after 3/1/2009

• Does not expand eligibility for COBRA


The Act was signed into law on February 17, 2009 and it provides a 65% subsidy for COBRA for individuals terminated between 9/1/2008 and 12/31/2009. It provides a subsidy for coverage months on or after 3/1/2009. It is important to keep in mind that this act does not expand eligibility for COBRA. Rather it provides a way to pay for the coverage. Some of you may have heard that early versions of the bill included expansions including people over age 55 and long service employees. The final law does not include these provisions.




33/20/2009


Responsibilities

1. Multi-employer plan– The multi-employer plan must administer

2. Employer subject to COBRA – The employer must administer

3. Employer not subject to COBRA – The insurer administers– Typically employers under 20 lives, some

church plans, some government plans – Subsidy applies to states with

comparable continuation laws


The act is very clear about who is responsible for administration. Multi-employer plans and employers subject to COBRA must administer the law. What that means is that the employer or plan must send notices to affected individuals or delegate that responsibility to a COBRA administrator. And it means that the employer must collect the subsidy by offsetting their payroll taxes. This latter responsibility can not be delegated to another entity.

The last category are those employers who are not subject to COBRA. These are generally employers who have less than 20 lives… part-time employees are counted fractionally. It also includes some church plans and government plans. Because COBRA is not available here, the subsidy applies to state continuance, but only when it is comparable to COBRA. Here the insurer is responsible for administration.




43/20/2009


Who is Eligible?

Employee must be involuntarily terminated

between 9/1/08 and 12/31/09

Employee must be eligible to elect

COBRA between 9/1/08 and 12/31/09

AND


To be eligible for the subsidy an individual must have been involuntarily terminated between 9/1/08 and 12/31/09. The term “involuntary termination”was not defined in the act and we are expecting some guidance from the Feds. That guidance is expected by mid-April. The employee must also be eligible to elect COBRA in the same time frame. Some severance agreements contain provisions where one but not both of these conditions would hold true and in that case the subsidy does not apply.




53/20/2009


Who is Eligible?

• Spouses and dependents

•As dependents

•As individuals, in some circumstances

• Not eligible

• If involuntary termination resulted from gross misconduct

• If coverage terminates • but employment does not

(reduction in hours)• there is no existing group

health plan• If a state determines their

continuance is not comparable


Eligible individuals can also include spouses and dependents if they would have been eligible under COBRA as a dependent and in some circumstances as an individual in their own right. Some states may hold that a dependent can not become eligible in their own right. IL is one example.

Individuals may not be eligible for the subsidy for several different reasons. One is if they were terminated for gross misconduct. Some individuals may be eligible for COBRA but not eligible for the subsidy. In these cases, such as reduction of hours, there was no termination of employment. Others may have been terminated from employment but their ex-employer is no longer maintaining a group health plan. There can be no COBRA or subsidy here since there is no group health plan. Finally, if a state determines that their state continuance is not comparable to COBRA, individuals on continuance in that state are not eligible for the subsidy.




63/20/2009


Who is Eligible?

• Income limits– Limits

• Ineligible for subsidy– if annual gross income > $145,000 (single) or $290,000 (family)

• Subsidy phased out– if annual gross income > $125,000 (single) or $250,000 (family)

– Employer is not responsible for tracking employee income eligibility

– Employer responsibilities• Employer must pay subsidy even if they know employee income limit

exceeded eligibility for subsidy• Report subsidy on a revised tax form (probably a W-2)• If employee requests waiver of subsidy, employer must comply


There are income limits in the law. However, it is important to note that the employer is not responsible for tracking eligibility on that basis.

The employer or insurer will be responsible for reporting the value of the subsidy to the employee at year end…probably using a W-2 if an employer and a 1099 if an insurer. The employee will have to report this amount on their tax return. If income exceeds the limit, the amount must be repaid through the tax filing but there is no penalty. An employee can inform the employer that they would like to waive the subsidy and the employer must comply. On the other hand, an employer must extend the subsidy even if they know the employee exceeds the income limit in the current year. This is because the waiver is permanent and the subsidy may cross tax years. The employer has no way of knowing whether the employee will exceed the income limit in the 2010 tax year.




73/20/2009


Special Election

• Special 60-day period to elect coverage for employees who have not elected COBRA within Notice Period:

– Department of Labor provided model notices 3/19/08• General notice used for those with no qualifying event• Abbreviated general notice used for those already on COBRA• Alternative notice applies to state continuation laws• Extended election period notice for eligible individuals not currently on COBRA

– Employers or their administrators must notify individuals within 60 days of new special election rights

– Employers must notify all individuals eligible for COBRA from 9/1/08 through 12/31/09• Regardless of qualifying event – age out, etc.• But only those involuntarily terminated individuals eligible for the subsidy

– Election period is 60 days from date of notice

– States are to determine whether special election applies to their continuation coverage


The law also makes provision for individuals who may not have taken COBRA because they could not afford it. So, it establishes a 60 day special election period or reelection opportunity. The DOL released four model notices 3/19/09 to help plans and individuals comply with these requirements. Each model notice is designed for a particular group of qualified beneficiaries.

• The General Notice includes information on the premium reduction as well as information required in a COBRA election notices. So this form would be used for those who have not already had a COBRA qualifying event.

• The abbreviated version of the General Notice excludes the COBRA coverage election information. So this form would be used for those already on COBRA.

• The third notice the DOL released is an Alternative Notice. Insurers must send this Notice to persons who become eligible for continuation coverage under a State law. We will modify this notice as required to comply with each States’ law.

• The final notice is in connection with extended election periods. It must be sent to anyone who had a qualifying event from September 1, 2008 through February 16, 2009; and either did not elect COBRA continuation coverage, or who elected it but subsequently discontinued COBRA.The law is quite specific about who must be notified. Everyone who was eligible for COBRA from 9/1/08 through present must be notified regardless of qualifying event. The reasons were, first, that it was thought to be simpler to administer and second, they anticipated that there could be disagreements between employer and employee as to the nature of a termination. If the employer felt a termination was voluntary and the employee felt otherwise, the notice is needed to give the employee their rights to appeal. Employees have 60 days from the date of notice to reply. States, and this is an area where we don’t have a lot of information, must determine whether a special election period applies to their state continuance. States we have talked with would like to extend this to their citizens but are scrambling to determine what they need to do to allow it. This might be anything from a bulletin to actual emergency legislation.




83/20/2009


Special Election

• Individuals electing– If individual previously declined COBRA or had let it lapse,

coverage is retroactive only to 3/1/09• Does not extend months of COBRA eligibility – maximum

is still 18 months from date of qualifying event

– For all, subsidy is retroactive only to 3/1/09• Until election is processed, active participants

must continue to pay full premium for at least first 60 days following election


One significant area of confusion is retroactivity. Individuals electing coverage in the special election period can only do so retroactive to 3/1/09. It also does not extend coverage past the maximum number of months of COBRA eligibility starting from the original qualifying event. So, an example would be an individual involuntarily terminated on 1/1/09 who did not elect COBRA at that time. During the special election period, she elects coverage. That coverage would start on 3/1 but it would end 18 months from 1/1 or on 6/30/2010 NOT on 8/31/2010.

As with coverage, the subsidy is only retroactive to 3/1/09. Many individuals have called and asked what to do now. They have received no notice so what should they, as an individual, pay? They should pay 100% of the bill until the notice is returned and processed.




93/20/2009

What is Eligible?

• All health plans eligible for subsidy:– All coverage under COBRA

• Medical, dental, vision, etc. • Except Flexible Spending Accounts

– Coverage under comparable state continuation laws

– Employers may choose to allow participants choice of lower cost options available to active employees



The coverages eligible for the subsidy are all those eligible for COBRA and coverages eligible under state continuance laws that are comparable to COBRA--except flexible spending accounts. Employers may also choose toallow participants the option of choosing another lower cost plan that is available to active employees. If this is permitted, the employee has 90 days to elect a different coverage as opposed to the 60 days for subsidy or special election.




103/20/2009


Subsidy

• 65% of COBRA premium for maximum of 9 months– Generally, this is 65% of whatever the participants would have

been charged

– If employer charges 102% for admin, subsidy includes admin

– If employer severance agreement provided for subsidized premium,ARRA subsidy is of agreed upon amount

– If employer severance agreement pays first months, ARRA subsidy applies only to the months remaining of the 9 in which the participant pays premium


The subsidy is 65% of the COBRA premium for a maximum of 9 months. COBRA eligibility may extend further than eligibility for the subsidy. Generally, the 65% applies to whatever the participant would have been charged for COBRA in the absence of this law.

So, let’s look at some examples.




113/20/2009

Subsidy Examples

Example 2• Continuance premium is

$1000

• Employer severance agrees to pay 20% ($200)

• Participant pays $800

• Subsidy = $520 (= .65 x $800 )

Example 1• Active employee premium

is $1000

• COBRA premium is $1020 (102%)

• Subsidy = $663 (= .65 x $1020)

This presentation should not be construed as legal advice. v


In the first example, the active employee rate is $1000 and the employer chooses to charge a COBRA administration fee of 102%. This means that the COBRA premium is $1020. The subsidy is 65% of the $1020 or $663.

In the second example, the employer is not subject to COBRA or has not chosen to charge the COBRA administration fee. The active rate and the continuance premium are the same…$1000. However, as part of a severance package the employer agreed to pay 20% of the continuance premium. So, in the absence of this act, the participant would have paid $800. In this case, the subsidy is 65% of $800 or $520. This example is also known as “no good deed goes unpunished.”




123/20/2009


Subsidy Examples

Example 3• COBRA premium is $1000

• Employer severance agrees to first 3 months

• Subsidy = $0 for first 3 months

• Subsidy = $650 for last 6 months (= .65 x $1000)


The third example is a variant on the second. The severance agreement includes payment of the first three months of COBRA premium. Here the participant would have paid nothing in the absence of ARRA so the subsidy is $0 or rather 65% of zero! During the last 6 months though, the participant would have been paying $1000 so the subsidy goes to $650. This example depends on the language of the severance agreement and if this is your situation we recommend that you work with you legal counsel to make certain of the facts and law for your specific situation.




133/20/2009

Subsidy Availability

• Generally for 9 months– Ceases on eligibility for group coverage or Medicare

– Wait period not considered eligibility

– Individual must notify plan if/when ineligible• Penalty of 110% of subsidy if individual

fails to notify employer of new coverage• Department of Labor procedures pending



The subsidy is generally available for 9 months but ceases when a participant becomes eligible for group coverage. This is different from the traditional COBRA language which is when a participant becomes enrolled. If an individual is eligible for group coverage under any plan including a spouse’s they must notify the old plan. If they fail to do so there are penalties.

However, without DOL procedures, how this might be enforced is unclear. One fine point is that if a new employer imposes a wait period before an employee becomes eligible under their plan, it does not trigger loss of subsidy.




143/20/2009


Appeal Rights

• Eligible individuals who are denied a subsidy may submit an appeal to the DOL/HHS

• Appeals must be reviewed within 15 business days

• Appeal procedures to be published


Earlier, I mentioned that there might be instances where an employee and employer disagree on the form of termination. If the employer says the termination was voluntary, the employee has the right to appeal to the DOL for COBRA and HHS for state continuance. Appeals must be reviewed within 15 business days and we are awaiting procedures from the Feds.




153/20/2009


Payroll Tax Credit

• Subsidy is offset by payroll tax– Employer employment tax return

Form 941

– Offsetting payroll taxes:• Income tax• Employee FICA tax withholding• Employer FICA tax obligation

– If subsidy exceeds payroll tax liability, a tax refund will be issued

– Collection of tax credit can not begiven to another entity


The subsidy is offset by payroll tax ... income and/or FICA. This is done through Form 941. Monies can be offset against deposits or as a refund. The collection of the tax credit can not be delegated to another entity. As I mentioned before, the information gathered on Form 941 is limited to the number of individuals and the dollars. Additional information must be maintained by the employer/insurer. It is unclear if there will be further reporting requirements or if this will be for audit purposes only.




163/20/2009


Payroll Tax Credit

• Credit may not be claimed before it arises:– Day the individual pays the premium

– Day employer pays the subsidy to carrier

NOT


There are tax intricacies surrounding when the credit may be claimed. Guidance that we have received indicates that it is the day the individual pays the premium. This may require additional reporting between entities like COBRA administrator and employer or between employer and insurer. This area is evolving and we will continue to update you as we get more information.




173/20/2009

Other Reporting Requirements

• Treasury is in process of publishing additional reporting requirements including:

• Attestation of involuntary termination• Amount of payroll tax offset in current period• Estimate of payroll tax to be offset in next period• SSNs for all covered individuals• Amount paid by participant• Whether subsidy was for 1 or more individuals

• Method of reporting to be determined



Some of the additional information that must be collected and may be reportable to the government includes attestation of involuntary termination, amount of payroll tax offset in current period and an estimate for the next period, SSNs for covered individuals, amount paid by participant and whether the subsidy was for 1 or more individuals.




183/20/2009

• Employers and Multi-Employer Groups must administer– Send notice to potential participants

– Collect premiums (unless delegated to an administrator)

– Offset subsidy against insurer’s payroll tax

– Maintain data needed for insurer tax filings

For Employers Subject to COBRA



Most employers are subject to COBRA. And if the employer is subject to COBRA, the burden of administration rests with them. This means that the employer must send notices to potential participants, collect premiums (unless it has been delegated to an administrator), offset the subsidy with their payroll tax and maintain back-up tax data.




193/20/2009

For Employers Not Subject to COBRA

State Continuance Comparable Special Election

Illinois Yes Would like to extend

New Mexico Yes No

Oklahoma Proposing emergency legislation No

Texas Yes, informally Would like to extend

Other states Being researched Being researched


Subsidy applies to state continuation only if comparable to COBRASpecial election not automatically extended to continuanceInformation in the above table current as of 3/17/09 and is highly likely to change


For the next few slides, I am going to concentrate on employers not subject to COBRA. These are typically those with fewer than 20 employees and some church and government plans.

A subsidy from the federal government is only available if the state continuance is comparable to COBRA. The Feds have said they will not determine comparability and have left the determination to the states. In addition, they have said each state must decide whether a special election applies to their state’s continuance.

The table shown here on slide 19 describes where the states were as of 3/17. This is an extremely fluid situation and we expect this information to change.




203/20/2009


• Insurer responsibilities– Send notice to potential participants

– Offset subsidy against insurer’s payroll tax

• Employer responsibilities– Collect premiums (unless delegated to an administrator)

– Provide listing of:• All individuals eligible for continuance from 9/1/08 through 12/31/09

and their contact information• Involuntary terminations• Other data needed for insurer tax filings



However, as insurer, we are responsible for offsetting any subsidy against our payroll tax and for sending notice to participants. Therefore, to prevent misfiling of our taxes, we are taking the position that no subsidy or special election is available to the participant unless the state makes a formal determination. At the same time, we recognize that the states are trying to find a way to affect this. Even a formal determination may be overturned in the future. So, we will be collecting data from employers as if all state continuance was comparable and subject to special election. However, we will hold notices to employees until we have formal confirmation from the states.

The employer responsibility is to collect premiums unless they have delegated this to an administrator. The employer is also responsible for providing to us a list of all individuals eligible for continuance, noting those that are involuntary terminations as well as other info that we will need to file our taxes. We will be providing a tool to return this information. Please wait for this tool as it will prevent us having to come back to you with additional data requests.




213/20/2009


• Employers will receive a mailing next week requesting data• Will also be available on producer and employer portals• Must be returned by April 8

• Employee notices will be sent out as we receive employer data

• Returned notices cross-checked for involuntary termination• If employer disagrees, instructions for appeal will be sent to employee• If agreement, involuntary terminations will be moved to a new section

• Billing• Future bills will be sent to those with involuntary terminations at 35%• Previous months billed at 100% but eligible for subsidy

Will offset against future months’ bills



The employers will receive a mailing next week requesting this information. It will include a description of ARRA, state continuance provisions, the tool we will be using to collect the information and a description of the billing process. This request will be due back to us by April 8. We realize that this is an extremely tight deadline but we need time to process the information and mail notices to the participants by 4/18. We encourage you to start collecting this information now. The Excel worksheet will be on the portal Monday.

We will send out those notices to employees only after we receive the data back from employers. The employee has 60 days to return the notice. At that time we will cross-check with information from the employer to make certain there was an involuntary termination. If not, we will send info to the employee on the appeal process. If there is agreement, we will move the individual to a new group/section.

Future bills for individuals in the special section will be billed at 35%. In many instances, March and April will have been billed and remitted to the employer at 100%. The overpayment here will be offset against future bills. The act allows this offset if the credit can be used within 180 days. In this case and where the participant becomes eligible for other coverage before the credit is exhausted, we will send the balance to the participant.




223/20/2009

For COBRA Administration Clients

• Administrator responsibilities– Send notice to potential participants– Collect premiums from participants– Report data needed for employer’s tax filings

• Employer responsibilities– Offset subsidy against payroll taxes (unless not subject to COBRA)– Provide listing of:

• Involuntary terminations• New clients

– All individuals eligible for continuance between 9/1/08 and effective date



In the next few slides, I’m going to concentrate on those accounts for which we provide COBRA administrative services.

For groups where we are COBRA administrator, we will continue to provide notices and collect premiums. We will also send notice to individuals eligible for a special election. If an employer is subject to COBRA, they are responsible for offsetting the subsidy against their payroll tax. We will also include reporting with the monthly reconciliation that will provide documentation for the employer’s tax filing.

We are asking employers to submit a monthly list of individuals that they have involuntarily terminated. If an employer first became a COBRA administration client after 9/1/08, we will be asking for a list of all individuals with COBRA-qualifying events from 9/1/08 through the date the employer became an COBRA administration client for use in the special election notice if applicable.




233/20/2009

For COBRA Administration Clients

• We anticipate notices to potential participants will be sent outstarting April 13.

• Employers mailing next week on how to submit lists of involuntary terminations

• Excel® worksheet rather than AEP, FTP, manual• Will also be available on producer and employer portals• Must be returned by April 8

• Returned notices cross-checked for involuntary termination• If no listing of involuntary termination received, will assume participant is eligible • If employer disagrees, instructions for appeal will be sent to employee

• Billing• Future bills will be sent to those with involuntary terminations at 35%• Previous months billed at 100% but eligible for subsidy

Will offset against future months’ bills This presentation should not be construed as legal advice.


We anticipate that notices will be sent out in waves starting on April 13. We will use the coverage and rate information we already have available.

Concurrently, we will be mailing a request for information on involuntary terms next week and it will be available on the employer and producer portals on Monday. It will be in the form of an Excel® worksheet rather than automatic electronic processing (AEP), file transfer process (FTP), or paper copy. This is so that we can eliminate the testing and programming time needed to modify AEP, FTP and manual processes. The worksheet must be returned to us by April 8 and monthly thereafter with a listing of new involuntary terminations.

When notices are returned by the participant, we will cross-check to determine if the employer agrees that the individual was involuntarily terminated. If we do not have the listing from the employer, we will assume that the member has correctly represented themselves and process the notice accordingly. If there is disagreement, we will send a letter to the participant explaining their appeal rights.

Future bills will be sent out at the 35% level for the involuntary term and any credit arising from the first months being paid at 100% will be offset against future bills.




243/20/2009

Responsibilities

InsurerInsurerERERTax Offset for:

AdminERAdminERWho Collects

Participant Premiums

AdminInsurerAdminERWho Sends Notice

YesNoYesNoAdministrator?

Not Eligible for COBRAEligible for COBRAEmployer is ►



For easy reference, this table summarizes the responsibilities I have been describing in the previous slides.




253/20/2009

Department of Health and Human Services Web site (small groups)

http://www.cms.hhs.gov/COBRAContinuationofCov/

Resources for Producers and Accounts

Revised Form 941 Instructions

Internal Revenue Service Web site

► http://www.irs.gov/

Department of Labor Web site

► http://www.dol.gov/



Revised Form 941 and 941x are available on the IRS Web site. Q&A on the COBRA provisions of ARRA are available on the DOL Web site. The DOL Web site can be subscribed to and notices of updates will be sent via email.

Health and Human Services has a web site that is applicable to all our small groups.

In addition, all notices and data collection tools, along with this presentation and tips for employers and producers, will be available in the producer and employer portals on the Blue Cross Web sites.




263/20/2009

Resources for Members

• Visit your Plan’s Web site for other individual and family coverage options available to:

– people who have lost their employment or group benefits

– employed workers who are not provided with health care benefits through their employers

– consumers who are self-employed



We have also provided updated information on our Blue Plan Web sites for members who are seeking coverage options during these financially challenging times.

While we would encourage members who have lost group coverage to see if COBRA may be a more viable option now with the subsidy, we also offer individual coverage, temporary policies, and Medicare supplemental plans for those eligible. Our Web sites also include information on state or federal plans for which they may qualify.




Conclusion

How Does this Affect Your Group Health Plan?

• For application of the new subsidy rules to your group health plan, please consult your attorney.

• Please direct all other questions to your account executive.



As you can see this is a complex law with extremely tight timeframes. Many areas in regard to the law are still being defined and/or clarified. This presentation should not be construed as legal advice as it reflects our current understanding and thinking. Please consult your attorney to determine how this affects your plan. If you have other questions, please direct them to your account executive. We can now open the line for questions.

american recovery act 2009 broker final · divisions of health care service corporation, a mutual...

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