Vision Payroll

The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Extended Election Period under Notice 2009-27. Most of the issues covered in this topic unless otherwise indicated “apply only for purposes of Federal COBRA and temporary continuation coverage under” Federal Employees Health Benefits Program (FEHBP).

Employees who elected self-only coverage and were involuntarily terminated after August 31, 2008 and before February 18, 2009 are allowed an extended election period to elect coverage for a spouse and dependent children who are qualified beneficiaries and eligible for premium reduction.

COBRA continuation coverage begins with the first period of coverage after February 16, 2009 for coverage elected during the extended election period. For plans that require coverage to be paid for on a calendar month, March 2009 is the first period of coverage eligible for premium reduction. This is true even if the plan requires employees to pay a pro-rata portion of the February 2009 premium. If, however, the plan requires coverage to be paid for on a monthly period based on the last day of coverage, the first period of coverage could be different. Assuming the last day of coverage were October 3, 2008, the first period the employee would be required to pay for would be October 4, 2008 through November 3, 2008. The first period of coverage beginning after February 16, 2009 would be March 4, 2009 through April 3, 2009.

Employees who still had open COBRA elections as of February 17, 2009 may forego coverage under the initial election and elect only under the extended election period. Employees who do so need pay for COBRA continuation coverage for coverage periods after February 16, 2009. Employees who elect under their original COBRA election period would only be eligible for premium reduction for periods of coverage after February 16, 2009.

For most purposes, the extended election period is available only to plans subject to Federal COBRA or FEHBP. The extended election period does not apply to state plans that provide comparable coverage. State programs that allow a similar extended election would result in premium reduction for assistance eligible individuals (AEIs).

Qualified beneficiaries with health reimbursement arrangement (HRA) coverage “have access to the same level of COBRA continuation coverage as was available immediately before the qualifying event.”

AEIs that were eligible for other group coverage before February 17, 2009 but unable to enroll in group health coverage after February 16, 2009 are eligible for the premium reduction until they are eligible to enroll in another plan or until the premium reduction period ends.

A plan cannot require payment of the initial premium under the extended election period coverage “earlier than 45 days after the date on which the election of Federal COBRA under the extended election period is made for that qualified beneficiary.”

The next topic covered will be Payments to Insurers under Federal COBRA. Contact Vision Payroll if you have any questions on Notice 2009-27.

The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Recapture of Premium Assistance under Notice 2009-27.

A plan cannot refuse to provide premium reduction to an assistance eligible individual (AEI), even if the AEI’s income is so high that premium reduction recapture applies. Only if the AEI has notified the plan that the permanent waiver of premium reduction has been elected. An AEI notifies the employer or other entity eligible for the reimbursement by means of a signed and dated notification of permanent waiver. The waiver is permanent and regardless of actual income level in 2009 or 2010, the individual is no longer eligible for premium reduction.

The next topic covered will be Extended Election Period. Contact Vision Payroll if you have any questions on Notice 2009-27.

The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing End of Premium Reduction Period under Notice 2009-27.

Premium reduction generally continues until the earliest of:

1. The first date the assistance eligible individual (AEI) becomes eligible for other group health coverage or Medicare coverage;
2. Nine months after the first day of the first month the premium reduction provisions apply; or
3. When the AEI is no longer eligible for COBRA continuation coverage.

Under 1. above, eligibility for group coverage is the deciding factor. An AEI who is eligible for other group health coverage but elects not to participate in the plan, eligibility for premium reduction ends. The premium reduction eligibility would not end, however, until after the end of any waiting period imposed by a new employer or spouse’s employer.

If individuals are offered retiree coverage under the same plan as the COBRA continuation coverage, the offer has no impact on eligibility for premium reduction. If individuals are offered coverage under a different plan, eligibility may be affected. If the involuntary termination leading to the COBRA coverage occurred after February 16, 2009, then the individual is not eligible for premium reduction. If the involuntary termination occurred after August 31, 2008 and before February 17, 2009, then the individual is only ineligible for continuation coverage “if the period the individual is given for enrolling extends to at least February 17, 2009.”

Coverage under a Health Reimbursement Account (HRA) that qualifies as a Flexible Spending Arrangement (FSA) under §106 of the Internal Revenue Code of 1986 (IRC) does not end the period of eligibility for premium reduction. If the HRA does not qualify as an FSA under IRC §106, then coverage under the HRA terminates eligibility for premium reduction.

Even though an individual must be terminated before January 1, 2010 to be an AEI, premium reduction may continue after December 31, 2009, depending on the first date of eligibility.

Death of a terminated employee does not end the eligibility of an otherwise qualified beneficiary spouse and dependent children.

Failure to pay the required premium for COBRA coverage by the end of any applicable grace period ends qualification for COBRA continuation coverage and also eligibility for premium reduction.

An individual currently enrolled in Medicare may become a qualified beneficiary eligible for COBRA coverage as a result of an involuntary termination, but is not eligible for premium reduction.

If an AEI fails to notify an employer of eligibility for group health coverage and continues to receive a premium reduction, the employer is not required to refund the credit taken on Form 941. An exception would be if the employer knew of the eligibility for such coverage. The AEI may be subject to a penalty of 110% of the premium reduction received, unless the failure to notify the employer was due to reasonable cause and not willful neglect.

An AEI who is eligible for premium reduction more than once may receive up to nine months of eligibility for premium reduction for each involuntary termination. The period is not extended, however, “by a second qualifying event, such as a divorce, following an involuntary termination” which qualified the individual as an AEI.

The next topic covered will be Recapture of Premium Assistance. Contact Vision Payroll if you have any questions on Notice 2009-27.

The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Beginning of Premium Reduction Period under Notice 2009-27.

Premium reduction begins “as of the first period of coverage beginning on or after February 17, 2009…for which the assistance eligible individual [AEI] is eligible to pay only 35 percent of the premium…and be treated as having made full payment.” A period of coverage could be a month or some shorter period for which premiums are charged by the plan. If the plan charges premiums on the first day of each month for coverage that month, the first period of coverage possible would be March 2009. There is no provision to pro-rate coverage for February 2009 for otherwise eligible individuals.

If a plan requires employees who lose coverage during a month to pay for coverage for the remainder of that month in order to be eligible for COBRA continuation coverage and an employee loses coverage after February 17, 2009, the first period of coverage is the partial month of coverage. An exception is an AEI who elected as a result of the extended election period under ARRA. Such individuals are eligible for premium reduction only for the first full month of coverage.

The next topic covered will be End of Premium Reduction Period. Contact Vision Payroll if you have any questions on Notice 2009-27.

The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Coverage Eligible for Premium Reduction under Notice 2009-27.

Premium reduction is available for COBRA coverage for group health plans, including vision-only and dental-only plans, but not for flexible spending arrangements or FSAs under §106(c) offered under a §125 cafeteria plan. Health reimbursement arrangements or HRAs are eligible for premium reduction even though they qualify as FSAs under §106(c). That is because they are not provided through a §125 cafeteria plan. Non-health benefits, such as group life insurance, that are not eligible for COBRA continuation coverage are also not eligible for premium reduction.

Retiree coverage that doesn’t differ from that offered to “similarly situated active employees”, whether or not the cost is the same, is also eligible for premium reduction, as long as the cost to the employee does not exceed the maximum allowable under COBRA.

The next topic covered will be Beginning of Premium Reduction Period. Contact Vision Payroll if you have any questions on Notice 2009-27.

The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Calculation of Premium Reduction under Notice 2009-27.

The premium amount used to calculate the 35% share that the employee must pay is the amount that would be charged to the Assistance Eligible Individual (AEI) if the AEI were not an AEI. If the employer charges 102% of the premium as allowed by COBRA, the 35% paid by the AEI would be 35% of the 102% amount. If, however, the employer subsidizes any or all of that premium, the 35% share is based on that reduced premium. Payments by parties other than the employer, including but not limited to parents, guardians, state agencies, or charities, are counted towards the 35% payment required of the individual.

The following table provides amounts based on the example descriptions that follow the table:

Example 1: The employer normally requires COBRA eligible individuals to pay $500 per month. Credit based on $500 premium.

Example 2: Severance package requires payment of $200 per month for a period of six months, the same as is required of active employees. Employer considers $800 balance as employer contribution towards employee’s required COBRA payment during the COBRA continuation period. Credit based on $200 premium.

Example 3: Example 2 facts, except that after six months, the employer requires payment of the full $1,000 per month. Credit based on $1,000 premium.

Example 4: Same as example 2, except that the employer considers the COBRA continuation period to begin after the six month severance period. No premium allowed since COBRA coverage not applicable.

Example 5: Example 4 facts, except that the employer considers the COBRA continuation period to begin after the six month severance period. Credit based on $1,000 premium for the next nine months.

Example 6: Severance package requires no payment for a period of six months, even though active employees are required to pay $200 per month. Employer considers the continuation period to begin on date of involuntary termination. No credit allowed since no premium required.

Example 7: Example 6 facts, except the employer requires payment of $1,000 per month for months seven, eight, and nine. Credit based on $1,000 premium.

Example 8: Example 7 facts, with employer continuing to require $1,000 payment for remainder of COBRA coverage period. No credit since subsidy period of nine months has elapsed.

Example 9: Example 6 facts, except employer considers no loss of coverage until after six months (end of severance period). No credit allowed since no premium required.

Example 10: Example 9 facts, employee elects COBRA coverage after severance period. Credit based on $1,000 premium, allowable for a period of up to nine months.

Example 11: Employer had charged $500 per month prior to March 1, 2009 for COBRA continuation coverage, even though 102% of premium would have been $1,000. Effective March 1, 2009, employer charges $1,000 per month. Credit based on $1,000 premium.

Example 12: Employer had charged $400 per month prior to March 1, 2009 for COBRA continuation coverage, even though 102% of premium would have been $1,000. Effective March 1, 2009, employer charges $1,000 per month, but also provides a $600 taxable severance benefit to AEIs. Credit based on $1,000 premium.

Example 13: Employer had charged $400 per month prior to March 1, 2009 for COBRA continuation coverage, even though 102% of premium would have been $1,000. Effective March 1, 2009, employer charges $1,000 per month, but also provides a $350 reimbursement to employees that is excludible from income under IRC §106. No credit allowed since no premium required.

Example 14: Employer charges $1,000 per month for self-plus-two-or-more dependents. The covered individual has two assistance eligible individuals as dependents and one individual who is not an assistance eligible individual. Since there is no additional cost to providing the coverage for the ineligible individual, the credit is based on the entire $1,000 premium.

Example 15: Example 14 facts, except that individual has only one assistance eligible individual as a dependent and one individual who is not an assistance eligible individual. Employer charges $800 per month for self-plus-one dependent. Credit based on $800 premium. Employee pays 35% of $800 plus the full $200 for the non-eligible individual.

Example 16: An AEI has self-only coverage that would normally cost $450. With the subsidy, the employee pays $157.50 and the employer is eligible for a subsidy of $292.50. While still eligible for the premium subsidy and during an open enrollment period, the AEI adds a spouse and dependent child to coverage, resulting in a total monthly premium of $1,000. The spouse and child are not assistance eligible individuals since they were not covered under the plan on the day before the involuntary termination. Credit based on $450 premium. Employee pays 35% of $450 plus the full $550 for the non-eligible individuals.

This section also clarifies that the premium reduction does not apply to portions of premiums for individuals who are not qualified beneficiaries, even if the coverage is allowed under the employer’s plan or required by state law. Therefore, same-sex spouses or civil union partners will generally not be eligible for coverage as qualified beneficiaries. Furthermore, covered non-dependent children will not qualify as qualified beneficiaries. This is so even if state law requires the AEI to provide coverage to these children.

Finally, if an individual changes coverage from the coverage in place before termination to a new, more expensive coverage, the premium reduction can apply to the new, higher premium.

The next topic covered will be Coverage Eligible for Premium Reduction. Contact Vision Payroll if you have any questions on Notice 2009-27.

The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Assistance Eligible Individual (AEI) under Notice 2009-27.

In order to be an AEI, an individual’s job loss must result from an involuntary termination after August 31, 2008 and before January 1, 2010. It is irrelevant when the loss of coverage under the group plan happens, the involuntary termination must occur during that period. The individual must be eligible for continuation coverage at any point during that period and must elect COBRA continuation coverage. Therefore, an employee may be terminated during the eligibility period, but still not an AEI since the individual’s coverage doesn’t terminate until after December 31, 2009.

A qualified beneficiary is an individual covered under the group health plan on the day before the involuntary termination. There are exceptions in the case of children born to or adopted by covered employees during COBRA continuation coverage or in some situations where an individual was wrongfully denied continuation coverage.

If an employer provides health coverage to terminated employees on the same terms as it provides to active employees as part of severance benefits to terminated employees, the loss of coverage does not occur until the employer-provided coverage is no longer on those terms. If the employer considers the payment for the coverage for the employee “to be the provision of COBRA continuation coverage on behalf of the involuntarily terminated individual,” then the loss of coverage occurs the day before the provision of COBRA continuation coverage begins.

Assume an individual is involuntarily terminated on November 15, 2009 with normal coverage continued through the end of November. If six months health coverage is included as part of the severance benefits, the loss of coverage occurs May 31, 2010 and the individual cannot be an AEI. If the employer considers the payment to be payment of COBRA benefits on behalf of the employee, the loss of coverage occurs November 30, 2009, and the employee could become an AEI.

Similarly, under federal COBRA coverage, if there is no provision for an optional extension of required periods under §4980B(f)(8) of the Internal Revenue Code of 1986 (IRC), the loss of coverage is deemed to occur on November 15, 2009, the date of involuntary termination. An optional extension of required periods under IRC §4980B(f)(8) would result in loss of coverage being deemed to occur on May 31, 2010 (not May 31, 2009 as indicated in the answer to question 14 in Notice 2009-27).

Involuntary termination of an employee following another qualifying event generally does not qualify the qualified beneficiary from the first event to be an AEI. For example, if an employee is divorced after August 31, 2008 and before January 1, 2010 (a more inclusive period than indicated in Notice 2009-27) resulting in a loss of health coverage for the spouse and the spouse elect COBRA coverage, the later involuntary termination of the employed individual does not allow the spouse to be an AEI since the qualifying event was the divorce, not the involuntary termination.

An employer may offer continuation coverage on a voluntary basis that is not required under federal COBRA or similar state laws as defined in ARRA. An employee electing coverage under such a plan cannot be considered an AEI.

An individual may become an AEI more than once and is eligible for up to nine months of premium reduction for each involuntary termination.

The fact that an otherwise eligible individual does not elect COBRA coverage until after December 31, 2009, does not necessarily disqualify the individual from eligibility as an AEI, as long as the COBRA continuation coverage begins after August 31, 2008 and before January 1, 2010.

An employee’s death is not considered an involuntary termination and therefore a deceased employee cannot be an AEI.

The next topic covered will be Calculation of Premium Reduction. Contact Vision Payroll if you have any questions on Notice 2009-27.

The Internal Revenue Service (IRS) recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Involuntary Termination under Notice 2009-27.

According to the IRS, “involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” The facts and circumstances surrounding each termination will determine if a termination is involuntary. The IRS does clarify that the involuntary termination is from employment, not health coverage. Therefore, if someone is involuntarily terminated from a health plan of a spouse due to divorce, the terminated individual does not qualify for the premium reduction.

The following examples are generally considered involuntary terminations:

1. Employer’s failure to renew a contract if the employee was willing and able to provide services under similar terms and conditions
2. Employee-initiated termination due to “employer action that causes a material negative change” for the employee
3. Employee resignation when the employee had knowledge that the employer was about to terminate the employee
4. Employee retirement when the employee had knowledge that the employer was about to terminate the employee
5. Employee voluntary termination when the employer had reduced hours resulting in “a material negative change” for the employee
6. Lay-off with right of recall
7. Temporary furlough period
8. Employer termination of employee’s job while employee is out due to illness
9. Employer termination of employee’s job while employee is on disability leave
10. Involuntary termination for cause, although gross misconduct may result in the employee’s disqualification for federal COBRA benefits
11. Resignation of an employee due to a “material change in the geographic location of employment for the employee”
12. Employer initiated lockouts
13. An employee-elected termination in acceptance of a severance package when the employer indicates that a certain number of employees must accept the package or layoffs will result

The following examples are generally not considered involuntary terminations:

1. A reduction in hours if the reduction is not to zero, but see 5 above for exception
2. Absence from work due to illness
3. Absence from work due to disability
4. Death of an employee
5. Retirement, but see 4 above for exception
6. Work stoppages due to strikes imitated by employees or their representatives

The next topic covered will be Assistance Eligible Individual or AEI. Contact Vision Payroll if you have any questions on Notice 2009-27.

The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided.

This notice provides guidance in several areas. In addition to a background of the COBRA premium assistance, Questions and Answers cover the following areas:

1. Involuntary Termination
2. Assistance Eligible Individual or AEI
3. Calculation of Premium Reduction
4. Coverage Eligible for Premium Reduction
5. Beginning of Premium Reduction Period
6. End of Premium Reduction Period
7. Recapture of Premium Assistance
8. Extended Election Period
9. Payments to Insurers Under Federal COBRA
10. Comparable State Continuation Coverage
11. Additional Issues

Over the next few weeks, Vision Payroll will be providing more detailed information on each of these areas.