CLIENT SEMINAR APRIL 9, 2009 American Recovery & Reinvestment Act of 2009 - COBRA Premium Assistance Law

1. CLIENT SEMINAR APRIL 9, 2009American Recovery & Reinvestment Act of 2009 - COBRA Premium Assistance Law Lisa Carlson, Director of Planning & Regulation

2. Today’s Discussion History Health Plan Responsibilities Employer Responsibilities Member Responsibilities COBRA Premium Assistance -How much & for how long? How to apply for the Tax Credit Brendan Reilly - Davenport, Evans, Hurwitz & Smith, L.L.P. 2

3. HISTORY

4. History American Recovery & Reinvestment Act of 2009 • Addresses economic turmoil • Increased layoffs = increased uninsured • How can we help Americans keep their health insurance coverage? 4

5. The New Law Helps individuals pay their COBRA premiums Effective February 17, 2009 COBRA Premium Assistance starts March 1, 2009 However, eligibility is retroactive back to Sept 1, 2008 Timing is everything! 5

6. Who’s eligible? Assistance Eligible Individual (AEI) is a COBRA qualified beneficiary who meets all criteria: Is eligible for COBRA between Sept. 1, 2008 through Dec. 31, 2009; Elects COBRA; and Has a QE of “involuntary termination” of employment during this period. 6

7. Eligibility Period Both the involuntary termination and the beginning of COBRA eligibility must occur within this period (in blue). 7

8. Who’s eligible? What’s an involuntary termination? Employer-initiated termination of employment Termination for cause (poor performance, attendance issues, subordination) Exception for gross misconduct Lay-off period with a right of recall or a temporary furlough period However, it also includes a “material negative change” in the employment relationship 8

9. Who’s eligible? “Material negative change” in the employment relationship: Reduction in hours causing loss of benefits/loss in pay Resignation precluding a layoff Early or forced retirement Change in geographic location of employment Termination in exchange for a severance package 9

10. Who’s eligible? “The determination of whether a termination is involuntary is based on all the facts and circumstances.” - IRS Notice 2009-27 10

11. Who’s eligible? Involuntary termination does NOT include: Divorce Dependent child aging out of eligibility Death of employee Absence from work due to illness or disability Termination for gross misconduct Employee-initiated strike 11

12. Who’s eligible? Exception for High-Income Individuals Income exceeds $125,000 single ($250,000 for joint filers) Can waive assistance If you don’t waive assistance, the IRS will recapture premium assistance through an increase in your income tax liability for the year Employer and insurer NOT responsible for determining income thresholds 12

13. Who’s eligible? High-Income Individuals WARNING: Waiving COBRA premium assistance is permanent Once you waive assistance, you can’t receive premium assistance for future COBRA periods in 2009 or 2010, regardless of your change in income after losing your job! 13

14. The New Law Eligible plans Medical Dental-only Vision-only Prescription-only State continuation plans HRAs Retiree health plans (if it doesn’t differ from active employee benefit plan) Subsidy is available even if there’s no employer contribution 14

15. The New Law Plans NOT eligible for the subsidy: Flex Plan under Section 125 HSAs Church Plans under Code § 501 Indian Tribal Plans Conversion Plans Medicaid or CHIP 15

16. HEALTH PLANRESPONSIBILITIES

17. Health Plan Responsibilities Send out Member Notification (Model Notices) Receive & process Member Election Forms Report Member elections to employer to verify involuntary termination Send out new COBRA payment coupon books Receive COBRA premiums Report receipt of COBRA premiums to employer 17

18. Model Notices Small Group: Employers with fewer than 20 employees Large Group: More than 20 employees Subject to ERISA Self-funded 18

19. Member Notification Health Plan will send out 4 types of model notices: General Notice (full version) – for all who had QE from Sept 1, 2008 – Dec 31, 2009 (regardless of type of QE). Includes COBRA election form and premium assistance election form. General Notice (abbreviated) – for anyone who had a QE from Sept 1, 2008 – Dec 31, 2009 but already elected COBRA and still have it. Includes premium assistance election form. 19

20. Member Notification Health Plan will send out 4 types of model notices: Alternative Notice – for small group continuation plans under State law Extended/2nd Chance Election Notice – for anyone who had a QE from Sept 1, 2008 – Feb 16, 2009 and either did not elect COBRA at that time or who elected and dropped (including non-payment of premiums) Includes small group State continuation plans Includes COBRA election form and premium assistance election form Members have 60 day election period 20

21. 2nd Chance Election 2nd Chance/Extended Election Period Offered to those to elected but subsequently dropped coverage (even for non-payment of premiums) Coverage may be retroactive Pre-ex waiting period is null and void 21

22. Model Notices Plan options Can only downgrade in benefit plans, not upgrade Premium amounts by plan type Description of COBRA/state continuation rights Description of COBRA Premium Assistance rights Premium Assistance Election Form “Other Coverage” notification form for the Health Plan 22

23. Member Notification We have identified and categorized these COBRA members We’ve used Travis software for 10 years Industry experts in automating COBRA communication and maintaining a full scale management tool for enrollment, benefit period tracking and payment reconciliation 23

24. Member Notification Sanford Health Plan receives COBRA election and premium assistance election forms We will send reports to employer to verify who’s elected premium assistance Employer HR personnel verify that termination was involuntary Health Plan sends out new COBRA premium coupon books reflecting reduced premium amount due (35%) 24

25. Member Notification Sanford Health Plan receives COBRA election and premium assistance election forms Anyone identified as not eligible for premium assistance will be sent a denial notice Notification of expedited appeal rights to Dept. of Labor Dept. of Labor has 15 days to make determination 25

26. Member Notification For Large Group or Self-Funded Plans: Health Plan won’t bill employer until the COBRA member has paid their premium amount Report will reflect COBRA premiums paid Employer can apply for the credit in the quarter for which premium payment was made 26

27. Member Notification For Fully-Insured Small Group Plans: Health Plan subsidizes 65% of premium Health Plan (not employer) files for payroll credit in the quarter for which premium payment was made We still need employer to verify involuntary terminations 27

28. EMPLOYERRESPONSIBILITIES

29. EmployerResponsibilities Develop administrative procedures with payroll for complying with reimbursement with the government Develop procedures for gathering necessary information for applying for payroll credit Notify Sanford Health Plan of any employee severance or COBRA subsidy arrangements 29

30. COBRA MEMBERRESPONSIBILITIES

31. COBRA Member Responsibilities Notify us of address changes Must notify the plan in writing if no longer eligible for premium assistance Eligible for other group coverage Eligible for Medicare Penalty of 110% of the amount of premium reduction if they fail to notify Health Plan and continue to pay reduced COBRA premiums 31

32. PREMIUM ASSISTANCE

33. How much? • Reduces COBRA Premiums 65% • COBRA beneficiary pays 35% • Plan sponsor temporarily subsidizes 65% and receives reimbursement through payroll tax credit 33

34. How long? Premium assistance ends the earliest of: • The first date they become eligible for other group or Medicare coverage; • 9 months after the first month of coverage; or • Date of COBRA expiration 34

35. How long? Becoming eligible for other group coverage COBRA premium assistance ends the first date that other coverage can take effect Example: Your new job has 60 day wait-period for benefits. You may continue to receive the COBRA premium reduction until the first date that coverage can take effect under your new employer group plan. 35

36. How long? 9-months of COBRA premium assistance: May extend beyond December 31, 2009 if individuals qualify on or before this date Example: Involuntary termination occurs Nov. 20, 2009 COBRA elected and premium assistance starts Dec. 1, 2009 COBRA Premium assistance lasts through Aug. 31, 2010 (assuming no other coverage) 36

37. Large Group Example COBRA premium is $1,000 Member pays $350 Employer pays $650 Federal subsidy of $650 given back to employer in form of payroll tax credit Small Group Example COBRA premium is $1,000 Member pays $350 Health Plan pays $650 Federal subsidy of $650 given back to Health Plan in form of payroll tax credit Premium Reimbursement 37

38. Example Example 1: $1,000 mo. COBRA Premium 38

39. Example Example 2: $1,000 mo. COBRA Premium 39

40. PREMIUM REMBURSEMENT

41. Premium Reimbursement What if Member already paid March & April COBRA premiums? We will provide a credit that reduces subsequent COBRA payments We must reimburse within 60 days if it’s unrealistic that that credit will be used within 180 days 41

42. Premium Reimbursement What if employer subsidizes former employee’s COBRA premiums? If a third party (e.g. relative, state agency, hospital, etc.) pays the COBRA premium on member’s behalf, the third party only has to pay the 35% (which will accurately be stated in the coupon books) However, they cannot take credit for the subsidy - Only employers/insurers can 42

43. Premium Reimbursement The employer subsidy is for 65% of the individual’s COBRA premium If an employer pays all or some of the COBRA premium, only the portion that would normally be paid by the former employee is eligible for the subsidy Sanford Health Plan must be notified of such arrangements (i.e. severance packages or bargaining agreements) so that we’re accurately billing the member 43

44. Premium Reimbursement Examples: Monthly COBRA premium is $1,000 Employer pays $400 & Member pays $600 We bill the member for $210 ($600*0.35) Employer can only claim $390 ($600*0.65) tax credit as opposed to the $650 they could’ve claimed if they didn’t subsidize the premium at all Employer pays 100% of the COBRA Premium We bill the member nothing (35% of zero) Employer cannot claim anything for tax credit (65% of zero) 44

45. Premium Reimbursement How are premiums reimbursed? No reimbursement until COBRA member pays reduced premium Health Plan will coordinate this with HR through reports of paid premiums Employer reimbursed through payroll tax credit 45

46. Premium Reimbursement What documentation is needed for reimbursement? Attestation of involuntary termination Report of: Amount of payroll taxes off-set TINS of all covered employees Amount of subsidy per person Whether coverage is for one person or more IRS Form 941 has been revised to accommodate 46

47. For more information: • Department of Labor http://www.dol.gov/ebsa/cobra.html • IRS http://www.irs.gov/newsroom/article/0,,id=204505,00.html 47

48. Thank you Lisa Carlson 328-6859 carlsoli@sanfordhealth.org Tami Haberer 328-6860 haberert@sanfordhealth.org 48