Arkansas Cobra Insurance and Subsidy

FROM: ARKANSAS INSURANCE DEPARTMENT

SUBJECT: FEDERAL STIMULUS BILL – GROUP HEALTH COVERAGE

CONTINUATION SUBSIDY

DATE: MARCH 25, 2009

On February 17, 2009, President Barack Obama signed the American Recovery and

Reinvestment Act, commonly called the “Stimulus Plan Act.” The Stimulus Plan Act provides a

subsidy that may reduce by 65% the cost of COBRA and other state group continuation coverage

for workers who lose their jobs.

The purposes of this bulletin are (1) to provide information about the subsidy provided by the

Stimulus Plan Act to Arkansas citizens who have lost group health coverage due to an

involuntary termination of employment and (2) to notify insurance companies and health

maintenance organizations (“insurance carriers”) of their obligations in connection with the

group continuation coverage mandated by Arkansas law, A.C.A. §23-86-114 (“state group

continuation coverage”) resulting from the Stimulus Plan Act.

THE SUBSIDY PROVIDED BY THE STIMULUS PLAN ACT

What Are Group Coverage Continuation Laws?

Group coverage continuation laws require employers to offer employees who lose group

coverage the opportunity to continue their employer-based health insurance. COBRA is the

federal law that requires employers with 20+ employees to provide group continuation coverage.

The Arkansas state continuation coverage law requires insurance carriers providing group health

coverage to employers not subject to COBRA to provide group continuation coverage for a

period of up to 120 days after the termination of an employee’s coverage under a group health

plan.

When an Employee Loses Group Coverage and Elects Continuation, Who Pays the

Premium?

The employee who lost group coverage, not the employer, must pay the entire health insurance

premium.

What does the Stimulus Plan Provide?

The American Recovery and Reinvestment Act provides a 65% subsidy of the premium former

employees pay for either federal COBRA group continuation coverage or state group

continuation coverage. Note that the Stimulus Plan Act only applies the subsidy to continuation

resulting from involuntary termination of employment. Group continuations resulting from

divorce, legal separation or loss of dependency are not subject to the subsidy.

Who is Eligible for Subsidized Coverage under the Stimulus Plan Act?

Individuals who lose group health coverage because of an involuntarily termination (“former

employees”) between September 1, 2008, and December 31, 2009, are eligible for a 65% federal

subsidy of their federal COBRA continuation coverage premiums for up to 9 months. Those

former employees who elect state group continuation coverage are eligible for the 65% federal

subsidy of their state group continuation coverage premium for up to 120 days.

The law imposes an income threshold as an additional condition on an individual’s entitlement to

the premium subsidy. An individual is not entitled to benefit from the subsidy if the individual’s

income exceeds $145,000 (or $290,000 for joint filers). A reduced subsidy is available for

individuals between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers). The

mechanism for denying the credit is imposed on the qualified beneficiaries’ tax returns via a

recapture tax.

How Do Individuals Obtain the Subsidy?

Federal COBRA Continuation:  Employers are required to send forms to former employees so

that former employees can elect to continue their group coverage and receive the subsidy.

Former employees will have 60 days after receiving the forms to enroll. Further details about

enrollment will be provided by the federal Department of Labor. For the most up-to-date

information, contact the Department of Labor at 1-866-444-3272 or visit the agency’s website

(http://www.dol.gov/ebsa/COBRA.html).

State Group Continuation Coverage:

Insurance Carriers shall send a copy of this bulletin to

each of their employer group health plan policyholders that are subject to the Arkansas law on

continuation of coverage. Employers shall send a copy of this bulletin along with the Arkansas

State Group Continuation Coverage Election Form to former employees who were not eligible

for Federal COBRA continuation, but are eligible for continuation of coverage under the

Arkansas law. Former employees that elect continuation of coverage under the Arkansas law

may be eligible for the subsidy on their continuation premium. Former employees must contact

the insurance company to continue their coverage and receive the subsidy. Insurance Carriers

shall begin charging 35% of the state group continuation coverage premium to former employees

whose state group continuation coverage was in effect or becomes effective between March 1

and December 31, 2009. Insurance companies should make every effort to allow former

employees the opportunity to elect state continuation coverage and to receive the subsidy even if

the former employees fail to notify them within the ten day period required by law.

When Will Eligible Individuals First Receive the Subsidy?

The subsidy will be applied to premiums for the first period of coverage beginning on or after

February 17, 2009. For most individuals, the first period of subsidy-eligible coverage will begin

March 1, 2009. The subsidy is prospective (i.e., the Stimulus Plan Act does not subsidize group

continuation coverage prior to the first period of coverage on or after February 17, 2009).

NOTE:

Individuals who have already paid premiums for a period of coverage to which the

subsidy applies are entitled to a refund or credit from their employer for the subsidy amount.

How will the Subsidy be Applied to Group Continuation Coverage?

COBRA Continuation:

Former employees who qualify for the subsidy will only be required to

pay 35% of the group coverage continuation premium. The former employer initially pays the

remaining 65%, but the government will later reimburse the employer through a reduction in

payroll taxes. Former employees will not be required to pay the full group coverage continuation

premium and then seek a refund.

State Group Continuation Coverage:

Former employees who qualify for the subsidy will only

be required to pay 35% of the group coverage continuation premium. The insurance carrier will

provide state continuation coverage and the federal government will later reimburse the

insurance carrier for the 65% subsidy through a reduction in the insurance carrier’s federal

payroll taxes. Former employees will not be required to pay the full group coverage continuation

premium and then seek a refund.

Will Eligible Individuals Who Previously Terminated or Declined to Elect Group

Continuation Coverage Have Another Opportunity to Elect Group Continuation Coverage

and Receive the Subsidy?

COBRA Continuation:

If the eligible individual’s employment was involuntarily terminated

on or after September 1, 2008, and he or she initially declined to elect COBRA continuation

coverage, or elected COBRA continuation coverage and later stopped paying premiums, the

former employer must notify the former employee of an additional opportunity to elect COBRA

continuation coverage and receive the subsidy. The former employee will have 60 days to enroll

after receiving notification from his or her former employer. He or she must pay the initial

premium (35% of the COBRA continuation premium) within 45 days of making the election to

commence the COBRA continuation coverage.

State Group Continuation Coverage:

If the eligible individual’s employment was involuntarily terminated on or after February 17, 2009, and he or she initially declined to elect

state group continuation coverage, or elected state group continuation coverage and later stopped

paying premiums, the former employer must notify the former employee of an additional

opportunity to elect state group continuation coverage and receive the subsidy. The former

employee will have 10 days to enroll after receiving notification from his or her former

employer. He or she must pay the initial premium (35% of the state group continuation

premium) within 10 days of making the election to commence the state group continuation

coverage.

Does the Stimulus Plan Act Extend the Length of Available Group Continuation

Coverage?

The Stimulus Plan Act does not change the length of time that group continuation coverage must

be provided to eligible individuals: COBRA typically provides for up to 18 months of coverage,

while the state group continuation law provides for up to 120 days of coverage.

Can an Individual Lose Eligibility for the Group Continuation Subsidy?

COBRA Continuation:

A former employee can lose eligibility for the COBRA continuation

subsidy in two ways. First, the subsidy for COBRA continuation lasts no longer than 9 months.

Second, the former employee becomes ineligible for the subsidy when he or she becomes

eligible for new group health coverage or Medicare.

Former employees must notify their former employer when they become eligible for new

group health coverage.

Former employees who willfully neglect to notify their former employer of their

eligibility for a new group health plan must repay 110% of the subsidy to the federal

government. No such penalty shall be imposed if the former employee demonstrates

“reasonable cause” for the failure.

NOTE:

Rules governing eligibility for subsidized COBRA differ from rules governing

eligibility for unsubsidized COBRA. Eligibility for unsubsidized COBRA ends only when a

beneficiary enrolls in new group coverage or Medicare. However, simply being eligible for new

group health coverage disqualifies an individual from receiving the COBRA subsidy.

State Group Continuation Coverage:

A former employee can lose eligibility for the state

group continuation coverage subsidy in two ways. First, the subsidy for state group continuation

coverage and the coverage itself lasts no longer than 120 days from the date he or she lost

coverage due to involuntary termination of employment. Second, a former employee becomes

ineligible for the subsidy when he or she becomes eligible for new group health coverage or

Medicare.

Former employees must notify their former employer when they become eligible for new

group health coverage.

Former employees who willfully neglect to notify their former employer of their

eligibility for a new group health plan must repay 110% of the subsidy to the federal

government. No such penalty shall be imposed if the former employee demonstrates

“reasonable cause” for the failure.

OBLIGATIONS OF INSURANCE CARRIERS WITH RESPECT TO STATE GROUP CONTINUATION

COVERAGE

Insurance Carriers shall send a copy of this bulletin to each of its group health plan policyholders

subject to the state continuation of coverage law.

Insurance Carriers shall provide state group continuation coverage to former employees of group

health plan policyholders who elect such coverage and whose right to state group continuation

coverage has not expired (e.g. a reason for expiration is that more than 120 days have passed

since the termination of the former employee’s group health plan coverage).

Insurance Carriers shall begin charging 35% of the state group continuation coverage premium

to former employees whose state group continuation coverage was in effect or becomes effective

between March 1 and December 31, 2009.

UPDATES

This bulletin focuses on the subsidies and changes to COBRA continuation and state group

continuation coverage resulting from the Stimulus Plan Act. Additional information will be

forthcoming as a result of the adoption of guidelines and regulations by the three federal

agencies (Department of Labor, Department of Health and Human Services and Internal

Revenue Service) that are charged with implementing the provisions of the Stimulus Plan Act.

For the latest updates, please refer to the Arkansas Insurance Department website,

http://insurance.arkansas.gov

, or call the Arkansas Insurance Department Consumer Services

Division at (501) 371-2640 or (800) 852-5494.