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COBRA Plans

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA) as part of the Economic Stimulus Bill. The Bill changes and adds to the current COBRA continuation laws. The changes assist workers who have been involuntarily terminated from their jobs by paying 65% of their cost of continuing Medical, Dental, Vision, Prescription or HRA insurance for up to 9 months. It also provides another opportunity to sign up for COBRA continuation for those that qualify, but have not elected continuation of coverage and were involuntarily terminated on or after September 1, 2008.

One of the most frequently asked questions of MEBS’ COBRA team is “I lost my job, do I qualify for the new law so I can keep insurance for my family?”  
The IRS and the Department of Labor (DOL) released more information and guidance for the American Recovery and Reinvestment Act of 2009 (ARRA).  The law offers a subsidy to terminated employees and their qualifying beneficiaries electing continuation of their group health plans through COBRA.  The IRS tells us, “an involuntary termination is the involuntary termination of employment, not the involuntary termination of health coverage. Thus, qualifying events other than an involuntary termination, such as divorce or a dependent child ceasing to be a dependent child under the generally applicable requirements of the plan (such as loss of dependent status due to aging out of eligibility), are not involuntary terminations qualifying an individual for the premium reduction. In addition, involuntary termination does not include the death of an employee or absence from work due to illness or disability.” [IRS guidance]

Here are a few questions and answers from the IRA and DOL that may help you understand how the  law works.  You can check out IRS guidance or http://www.dol.gov/ebsa/cobra.htm for more.


Q. Is an employer-initiated layoff an involuntary termination of employment for purposes of eligibility for the COBRA premium subsidy?
A. Yes, an employer-initiated layoff is generally an involuntary termination of employment for purposes of eligibility for COBRA premium subsidy.

Q. Does an involuntary termination include a lay-off period with a right of recall or a temporary furlough period?
A. Yes. An involuntary reduction to zero hours, such as a lay-off, furlough, or other suspension of employment, resulting in a loss of health coverage is an involuntary termination for purposes of the premium reduction.


Q. Does an involuntary termination include a reduction in hours?
A. Generally no. If the reduction in hours is not a reduction to zero, the mere reduction in hours is not an involuntary termination. However, an employee’s voluntary termination in response to an employer-imposed reduction in hours may be an involuntary termination if the reduction in hours is a material negative change in the employment relationship for the employee.


Q. Does involuntary termination include an employer’s action to end an individual’s employment while the individual is absent from work due to illness or disability?

A. Yes. Involuntary termination occurs when the employer takes action to end the individual’s employment status (but mere absence from work due to illness or disability before the employer has taken action to end the individual’s employment status is not an involuntary termination).


Q. Does involuntary termination include involuntary termination for cause?
A. Yes. However, for purposes of Federal COBRA, if the termination of employment is due to gross misconduct of the employee, the termination is not a qualifying event and the employee and other family members losing health coverage by reason of the employee’s termination of employment are not eligible for COBRA continuation coverage.

Q. Does an involuntary termination include a work stoppage as the result of a strike initiated by employees or their representatives?                                                          
A.
No. However, a lockout initiated by the employer is an involuntary termination.


Q. Does an involuntary termination include a termination elected by the employee in return for a severance package (a “buy-out”) where the employer indicates that after the offer period for the severance package, a certain number of remaining employees in the employee’s group will be terminated?
A. Yes.


Q. In order to be an assistance-eligible individual, must the individual actually have coverage under the group health plan at the time of the involuntary termination of employment?  
A.Yes. The individual must have actual group coverage at the time of the qualifying event, i.e., the involuntary termination of employment. The qualifying event must occur between Sept. 1, 2008, and Dec. 31, 2009, and the individual must be eligible for COBRA coverage at any time during that period.

Q. Is this provision for employees who involuntarily lose their jobs — or will it apply to all employees even if they leave voluntarily?                                                                                                   
A.
The credit applies only to involuntarily terminated employees and their family members who are qualified beneficiaries.

Q. How does the 65% premium subsidy get paid to me?
A. You will not receive a payment. Assistance Eligible Individuals are responsible for paying only 35% of the COBRA premium for the period of coverage. The remaining 65% of the premium is reimbursed directly to the employer, plan administrator, or insurance company through a payroll tax credit. 
 

Q. Does the 35% I am required to pay include any administrative fees plans are permitted to charge or do I need to pay that fee separately?
A.  If you are an Assistance Eligible Individual, you will only need to pay the amount that is 35% of what you would otherwise pay for your COBRA coverage, which already includes any administration fee.


Q. My health coverage was terminated when my employer shut down and laid off all its workers. Can I get the premium reduction to pay for new health coverage?
A. The premium reduction is available to help qualified individuals pay for COBRA continuation health coverage. If there is no longer a health plan, there is often no COBRA coverage available, unless another related or successor employer sponsors a group health plan responsible for providing continuation coverage to you.
If you believe a related or successor employer may be responsible for providing you with COBRA coverage, you can contact the employer directly or EBSA toll free at 1.866.444.3272 to speak to a Benefits Advisor for assistance.

Q. I am an assistance eligible individual who has been enrolled in COBRA coverage since December 2008. Will I receive a refund of 65% of all the premiums that I have already paid?
A. No. The premium reduction provisions apply only to premiums for coverage periods beginning on or after February 17, 2009. If you were eligible for the reduction but paid in full for periods of COBRA coverage beginning on or after February 17, 2009, you should contact the plan administrator or employer sponsoring the plan to discuss a credit against future payments (or refund in certain circumstances).

Q. If an Assistance Eligible Individual pays the full COBRA premium and is later determined to be eligible for the premium reduction, what should the plan do with the overpayment?
A. The plan (or other person to whom such payment is payable) can apply the overpayment as a credit toward subsequent premium payments as long as it is reasonable to believe that the credit can be used within 180 days of the overpayment. Otherwise, the overpayment must be reimbursed to the individual within 60 days of receipt.


Q. I am currently enrolled in COBRA continuation coverage, but would like to switch to a different coverage option offered by my former employer. Can I do this?
A. Group health plans are permitted, but not required, to allow qualified beneficiaries to enroll in coverage that is different than the coverage they had at the time of the qualifying event. ARRA provides that changing coverage will not cause an individual to be ineligible for the COBRA premium reduction, provided that:
- The premium for the different coverage is the same or lower than the coverage the individual had at the time of the qualifying event;
- The different coverage is also offered to active employees; and
- The different coverage is not limited to only dental coverage, vision coverage, counseling coverage, a flexible spending account, or an on-site medical clinic.

If the plan permits individuals to change coverage options, the plan must provide the individuals with a notice of their opportunity to change. Individuals have 90 days to elect to change their coverage after the notice is provided. 
 

Q. I received my COBRA election notice. Can I change my coverage option from the one I had previously?
A. In general, COBRA coverage is the same coverage that the individual had at the time of the qualifying event. However, under ARRA, an employer may offer Assistance Eligible Individuals the option of choosing other coverage that is also offered to active employees and that does not have higher premiums than the coverage the individual had at the time of the qualifying event.


Q. Only part of my family elected COBRA coverage but all of us were eligible. Can I enroll the others and take advantage of the premium reduction?
A. Each COBRA qualified beneficiary may independently elect COBRA coverage. Moreover, even if a family member did not elect COBRA coverage when first eligible, if the individual would be an Assistance Eligible Individual (except for his or her failure to elect COBRA coverage when first eligible or except because he or she discontinued COBRA coverage before February 17, 2009), that individual gets a second opportunity to enroll and qualify for the premium reduction.

Q. How can I get more information on my eligibility for COBRA or the premium reduction?
A. Guidance and other information is available on the Department of Labor website at www.dol.gov/COBRA. You can also call 1.866.444.3272 to speak to an Employee Benefits Security Administratior.

Q.
What is COBRA continuation?
A. COBRA continuation is temporary continuation of an employer sponsored group health plan that would otherwise be lost due to termination of employment, death or divorce. The  law is temporary and intended to help with the loss of health insurance due only to involuntary termination of employment during the current financial crisis.


Q. What insurance will qualify for Premium Assistance?
A. Your employer sponsored Medical, Dental, Vision, Health Reimbursement Arrangement (HRA), Employee Assistance Program (EAP) Prescription or combination of plans. If your insurance qualifies for COBRA, it qualifies for Premium Assistance as well.


Q. How do I qualify for the money?
A. You must meet all of these requirements:
•    Be a "qualified beneficiary"
•    Be involuntarily terminated from your job
•    Elect COBRA coverage either when it was first offered, or any time up to 60 days after you receive another election notice sent because of these changes in the law.

These individual would not qualify for premium assistance:
•    Domestic partners
•    Individuals able to be covered as a spouse or dependent on another plan
•    Voluntary resignation or terminated for gross misconduct
•    Loss of coverage because of a reduction of work hours
•    Death (this applies to spouse or dependents)
•    Covered employee becomes entitled to Medicare
•    Divorce or separation
•    Loss of "dependent child" status under your plan rules

Q. Who is a qualified beneficiary?
A. A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is an employee, the employee's spouse, or an employee's dependent child. In certain cases a retired employee, the retired employee's spouse, and the retired employee's dependent children bay be qualified beneficiaries. In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary. Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries. If you or any dependents are able to be on your spouse's health insurance, you do not qualify for premium assistance.


Q. What is an involuntary termination?
A. If your employer took the action for the loss of your job, generally it's involuntary. Death, reduction of work hours, voluntary resignation, or mutual agreement with a payout or other compensation does not qualify for premium assistance.  A child dependent that can no longer be covered because they have gone over the age limit does not qualify for premium assistance. Involuntary termination is the only qualifying event that will allow you to have premium assistance.


Q. What is Premium Assistance?
A. COBRA Premium Assistance is a 65% reduction in the amount you pay for continuation of your insurance for up to 9 months. Your premium may be paid by anyone other than your ex-employer. For example, another family member, charity, or state agency may contribute to your portion of the premium for COBRA continuation.


Q. How long does the Premium Assistance last?
A. The maximum assistance is 9 months. Your COBRA benefits may last longer.


Q. I was fired after September of 2008.  What if I did not elect COBRA or lost my COBRA coverage?
A.
There is an extended election period. You will have another chance to elect COBRA. The extended election period began February 17, 2009 when the law was signed. Your extended election period ends 90 days after you get the notice to elect COBRA under the American Recovery and Reinvestment Act of 2009.


Q. How do I sign up for COBRA continuation?
A. When your Notice to Elect Letter arrives, you have 90 days to deliver it to your employer. Choose the coverage you and/or your dependents want to elect, then mail or hand deliver it to your employer with the 90-day election period.


Q. How much will my insurance continuation cost me?
A. The premium cost is set by your employer. It can be as much as 102% of the applicable premium. Under the premium reimbursement you will pay only 35% of what the plan charges you.


Q. My employer pays for part of my COBRA, do I still qualify for premium reduction?
A. Yes. If your employer pays part of your premium you will pay 35% of your portion. Your employer will continue to pay their entire share of your premium and will collect 65% of your share from the government.


Q. Who is paying the part of my premium that I do not pay? Who pays the 65%?

A. Uncle Sam. Your employer will pay the full amount of the premium to the insurance company. They will then have a credit on their employer payroll taxes to cover the 65% premium assistance. If your employer has paid any COBRA premium for you, they will not get a credit for that portion.


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