American Recovery and Reinvestment Act of 2009 (ARRA)

1. COBRA Premium Reduction Under theAmerican Recovery and Reinvestment Act of 2009 (ARRA)Presented by Ray Davis, J.D.Compliance Consultant forNational Benefit Services, LLC

2. American Recovery and Reinvestment Act of 2009 (ARRA) • Temporarily reduces the premium for COBRA coverage for eligible individuals • Eligible individuals pay at most 35% of the full COBRA premiums (including the 2% administrative fee) under their plans for up to 9 months • Government subsidizes the other 65% of what the eligible employee would otherwise be required to pay, up to 65% of the full COBRA premium (including the 2% administrative fee) • Applies to group health plans that are subject to the Federal COBRA provisions, as well as for group health insurance coverage under state continuation coverage laws (such as state mini-COBRA).

3. Example:(Employer Subsidizes COBRA payment) Employer subsidizes 20% of the COBRA premium exclusive of the administrative fee: Premium Amount (family plan): $1000 minus 20% contribution: - $200 $800 plus 2% administrative fee:+ $20 Normally paid by individual : $820 x .35 Amount due under ARRA : $287 Amount paid by Government: $533

4. Who are Assistance Eligible Individuals (AEIs)? An Assistance Eligible Individual (AEI) is A COBRA qualified beneficiary who: • Is eligible for COBRA continuation coverage at any time during the period from September 1, 2008 through December 31, 2009; • Elects COBRA coverage (when first offered or during the additional election period provided by ARRA); and • The COBRA election opportunity relates to an Involuntary termination of employment that occurred at some time from September 1, 2008 through December 31, 2009.

5. Who are Assistance Eligible Individuals (AEIs)? An AEI may be • A covered employee OR • A covered employee’s covered spouse or dependent child who became a qualified beneficiary because of the involuntary termination of the covered employee’s employment

6. When Does the Premium Reduction Begin? • For most plans the subsidy begins March 1, 2009. • For assistance eligible individuals terminated after March 1 but before December 31, 2009, the subsidy begins the first period of coverage following termination.

7. Special Election Opportunity Individuals who were • offered Federal COBRA continuation coverage as a result of an involuntary termination of employment • that occurred at any time from September 1, 2008 through February 16, 2009, and • Declined to take COBRA at that time, or • Elected COBRA and later discontinued it, May have another opportunity to elect COBRA coverage and pay a reduced premium.

8. Special Election Opportunity • The Special Election Opportunity began February 17, 2009 • The individual has 60 days after the notice to elect COBRA. • It does not apply to coverage sponsored by employers with less than 20 employees that is subject to State law. (Some states, including Utah, have passed legislation to allow a Special COBRA Election Opportunity) • COBRA coverage is not extended beyond the original maximum period (generally 18 months from the employee’s involuntary termination). NBS sent notices to individuals the week of March 23rd.

9. When Does the Premium Reduction End? • The premium reduction ends as of the earliest of: • The date the AEI becomes eligible for coverage under another group health plan (other than plans providing only dental, vision, counseling, or referral services, a health care flexible spending plan, or a health reimbursement arrangement) or Medicare coverage; or • 9 months after the first day of the first month to which the subsidy applies; or • The end of the maximum COBRA coverage period required by law; or • For an AEI who elects COBRA during the special election period, the end of the maximum COBRA coverage period that would have applied if the AEI had elected COBRA coverage when first entitled to do so. • Individuals must inform their plans if they become eligible for coverage under another group health plan or Medicare.

10. Can the AEI Elect Different Coverage? Yes, if the employer allows it. Employers must notify NBS if they are going to permit AEIs to enroll in coverage that is different than the coverage they had at the time of the qualifying event. • The premium for the different coverage must be the same or lower than the coverage the individual had at the timer of the qualifying event; • The different coverage must also be 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. AEIs will be given 90 days after the date of notice to enroll in different coverage. NBS will assess a fee to employers electing this option.

11. How will the Employer be Reimbursed? • The COBRA subsidy amount is reimbursed by being claimed on the employer’s payroll tax return. • Employers claiming the credit must maintain supporting documentation for the credit claimed, such as • Information on the receipt of the AEIs 35% share of the premium • Copy of invoice from the insurance carrier and proof of timely payment of the full premium to the carrier • Attestation of involuntary termination Note: The new subsidy provision has no impact on FUTA. Refer to www.irs.gov for details.

12. New Notice Requirements • A general notice to all qualified beneficiaries, whether they are currently enrolled in COBRA coverage or not, who have a qualifying event during the period from September 1, 2008 through December 31, 2009. • A notice of the extended COBRA election period to any AEI who had a qualifying event at any time from September 1, 2008 through February 16, 2009; and who either did not elect COBRA continuation coverage or who elected but subsequently discontinued COBRA. Note: NBS sent the new notices the week of March 23rd and will continue to send the general notice to new qualified beneficiaries through December 31, 2009. Under the State programs, the issuer of the group health plan must provide the notice.

13. What Happens If the AEI Paid Full Premium for March and April? NBS will credit the overpayment toward subsequent premiums as long as it can be used within 180 days of the overpayment. If it appears that the overpayment is greater than what can be used within 180 days, it must be reimbursed to the individual within 60 days of receipt.

14. Are There Income Limits? If the modified adjusted gross income exceeds $145,000 (or $290,000 for joint filers), then the amount of the premium reduction during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), the amount of the premium reduction that must be repaid is reduced proportionately. There is no additional federal tax for individuals with modified adjusted gross income less than these income levels; however, Treatment of the 65% subsidy for state income tax purposes is determined under state law and depends on the tax law of the particular state.

15. Questions?

16. Additional Resources Find guidelines from the IRS and Dept. of Labor at our website: www.nbsbenefits.com/news.htm. Or go directly to ww.dol.gov/COBRA; 1-866-444-3272