Although I’ve been sounding the alarm bells for the last two months or so, on the new COBRA subsidy provisions, I’ve had informal discussions with various colleagues that suggest that some employers are either ignorant of the new rules or do not believe that the rules apply to them. Here are three areas why most employers in Connecticut need to be concerned.
1. State Mini-COBRA Laws Will Piggyback on the New Federal COBRA Subsidy. While federal COBRA only applies to employers with 20 or more employees, Connecticut has a parallel COBRA statute that applies to all other employers with group health plans (except those that self-insure). Why is this important? Because the new federal COBRA subsidy provisions will ALSO apply to those employees who are covered under a state COBRA rule as well.
The rules are slightly different. For example, if the state mini-COBRA rules apply, the insurer is responsible for sending out notices to former employees who may be eligible for assistance. In addition, the extended election period that, in essence, reopens the period for former employees to elect COBRA, does not apply for employers subject only to the state mini-COBRA.
Thus, for employers with less than 20 employees, you may still need to comply with the new COBRA subsidy provisions.
2. There Are Significant Penalties for Failure to Provide Notices by April 18, 2009. With the deadline to send out notices — particularly to former employees — coming up as early as Saturday, April 18, 2009 for many situation, employers who are scrambling to get the work done may be considering just postponing it. However, any such postponement carries with it significant risks.
Although the new law appears to be silent as to the exact penalties that will apply, it appears the standard penalties under COBRA or other federal laws may apply. Thus, plan sponsors (mostly likely, employers) who fail to provide the notice could be subject penalties of up to $110 per day under ERISA and an excise tax penalty of $100 per notice (with limits) under the Internal Revenue Code. The penalty or excise tax may apply to each Qualified Beneficiary. In addition, individuals may have a cause of action to sue for COBRA coverage and receive the benefits that should have been offered, as well as attorneys’ fees and “other relief.”
3. Employers That Pay COBRA Premiums Under a Severance Plan or Agreement May Want to Modify Them. The most recent guidance provided by the federal government clarified that the subsidy applies only to amounts actually charged to the assistance eligible individual for COBRA continuation coverage. Therefore, employers who contribute to an assistance eligible employee’s COBRA premium will not be able to recapture this amount. As a result, these employers may want to consider restructuring their severance policies so that they can get a tax credit for those amounts.
There’s much more to the new COBRA subsidy rules than first meet the eye. If you’re still confused, it’s not too late to sign up to the teleconference that I’ll be giving this Friday, through BLR.
As always, consult with a local attorney to determine how the new law applies to your business.