New Covid Legislation to provide COBRA subsidies

One of the more pertinent provisions in ARPA is the impact it has on COBRA subsidies moving forward. The legislation offers federal subsidies for COBRA premiums at 100 percent coverage. These subsidies apply from April 1 to September 30, but they are not retroactive.

Organizations will be required to cover the monthly premium expense but will be able to reimburse these expenses through a quarterly credit against payroll taxes. If the overall amount an employer pays for subsidized coverage is greater than its quarterly tax liability, it may claim a refund. One major component of this subsidization that sets it apart from a normal COBRA-election period is that it allows qualified individuals to make a prospective COBRA election for the period beginning April 1 without requiring payment of premiums retroactive to the original loss of coverage.

In regards to eligibility, any employee who lost health coverage for qualifying reasons between November 1, 2019, and September 31, 2021, could take advantage of COBRA subsidies. More specifically, these subsidies will be available to any previously covered employee or family member who may have lost coverage due to involuntary termination or reduction of hours and are still within their 18-month eligibility period. Any individual who loses their job from now until September will be able to instantly elect to stay on their employer’s health plan. However, as previously mentioned, an individual is only eligible if their termination was involuntary. It is also available to those who did not elect COBRA when initially eligible, or anyone who elected but subsequently dropped coverage. 

Subsidized coverage will terminate if the qualified individual exhausts the 18-month COBRA period prior to September 30. It could also end if the individual becomes eligible for coverage under another group health plan during the subsidy period or becomes eligible for Medicare. Additionally, since COBRA-election deadlines were already extended as a result of the pandemic, many individuals are still within their original COBRA-election periods. 

Those who are eligible under these parameters can sign up during a 60-day SEP beginning April 1. Plan administrators will be required to amend existing COBRA notices and share a separate document with forms necessary for the employee to establish eligibility, but they must act quickly due to the relatively short timeframe. For efficacy’s sake, organizations should begin identifying potentially eligible employees as soon as possible.

Several details of the rollout of this will be decided in regulatory guidance from the relevant federal agencies. We anticipate this federal guidance to include precisely how to set up these provisions, likely prior to the implementation date of April 1. Specifically, the Treasury Department may permit an advance credit for employers, while the Department of Labor is expected to issue model COBRA notices addressing the subsidy.  

Excerpt from NAHU Article dated March 12, 2021

Administration extends COBRA enrollment period for laid-off workers

People who’ve been laid off or furloughed from their jobs now have significantly more time to decide whether to hang on to their employer-sponsored health insurance, according to a recent federal rule.

Under the federal law known as COBRA, people who lose their job-based coverage because of a layoff or a reduction in their hours generally have 60 days to decide whether to continue their health insurance. But under the new rule, that clock doesn’t start ticking until the end of the COVID-19 “outbreak period,” which started March 1 and continues for 60 days after the COVID-19 national emergency ends. That end date hasn’t been determined yet.

By extending the time frame to sign up for COBRA coverage, people have at least 120 days to decide whether they want to elect COBRA, and possibly longer depending on when they lost their jobs.
Take the example of someone who was laid off in April, and imagine that the national emergency ends Aug. 31. Sixty days after that date takes the person to the end of October. Then the regular 60-day COBRA election period would start after that. So, under this example, someone whose employer coverage ended at the beginning of May could have until the end of December to make a decision about whether to sign up for COBRA, with coverage retroactive to the beginning of May.

Some health policy experts question the usefulness of the change, given how expensive COBRA coverage can be for consumers, and how limited its reach: It isn’t an option for people who are uninsured or self-employed or who work for small companies.

“For ideological reasons, this administration can’t do anything to expand on the Affordable Care Act’s safety net,” said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms. “So they’re using these other vehicles. But it’s really a fig leaf. It doesn’t do much to actually help people.”

What does this rule change mean for workers? If you have lost your job, here are some things to consider.

Playing a waiting game
Under the new rule, workers can keep their COBRA options open far longer than before. It’s always been the case that people could take a wait-and-see approach to signing up for COBRA during the first 60 days after losing their coverage. If they needed care during that time, they could elect COBRA, pay the back premiums and continue their coverage. But if they didn’t need care during that time, they could save a chunk of money on premiums before opting for other coverage to kick in after the 60-day period.

Now, people have even more time to wait and see. Under the rule, once the administration declares the national emergency over, laid-off workers would get 120 days to decide whether to purchase their job-based insurance — 60 days under the new rule and the regular 60 days allowed as part of the COBRA law.

“It becomes a long-term unpaid insurance policy,” said Jason Levitis, a nonresident fellow at the Center for Health Policy at the Brookings Institution. “There’s no reason to enroll until something bad happens.”

This is not without risk, consumer advocates point out. Someone who has a serious medical emergency — a car accident or a stroke — might not be able to process their COBRA paperwork before they need medical care.

Waiting too long could also affect people’s ability to sign up for other coverage. When people lose job-based coverage, it triggers a special enrollment period that allows them to sign up for new coverage on their state health insurance marketplace for up to 60 days afterward.

“You could miss your opportunity to enroll in the [insurance] exchange” created under the Affordable Care Act, said Katy Johnson, senior counsel for health policy at the American Benefits Council, an employer advocacy group.

Don’t count on the boss to clue you in
Employers are not mandated to tell people promptly about their eligibility for COBRA. The same federal rule that gives workers more time to sign up for COBRA also pushes back the notification requirements for employers.

“Once an employer lays you off, they don’t have to notify you that you’re eligible for COBRA until after the emergency period,” said Karen Pollitz, a senior fellow at KFF, the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.)

For many employers, especially large ones that outsource their benefits administration, notifications are routine and are continuing despite the federal change, said Alan Silver, a senior director at benefits consultant Willis Towers Watson. However, for smaller companies with fewer than 200 workers, getting the information out might be an issue, Silver said.

Costs can be jaw-dropping
Opting for COBRA is expensive because workers have to pay both their portion of the premium and their employer’s share, plus a 2% administrative fee. A 48-year-old paid $599 a month on average for individual COBRA coverage last year, according to a KFF analysis.

In addition, if people elect COBRA several months after losing their coverage, they could be on the hook for thousands of dollars in back premiums.

The upside for former employees is that sticking with their previous employer’s plan means they don’t have to start from scratch paying down a new deductible on a new plan. Nor do they have to find new doctors, as often happens when people switch health plans and provider networks change.

Ten percent of workers laid off or furloughed because of the coronavirus pandemic reported they had COBRA coverage, according to a survey conducted last spring by the Commonwealth Fund.

The COBRA extension is available only to people who worked at firms with 20 or more employees and had job-sponsored coverage before being laid off or furloughed. If the company goes out of business, there’s no health insurance to continue to buy.

Might hospitals step in to pay premiums?
Employers are typically not big fans of the program. Workers who elect COBRA are typically older and sicker than others with employer coverage, the KFF analysis found. They may have serious medical conditions that make them expensive to cover and raise employer costs.

Some policy experts are concerned that giving people more time to sign up for COBRA leaves the door open for hospitals or other providers to offer to pay sick patients’ back premiums in order to increase their own payment above what they’d receive if someone were on Medicaid or uninsured. Doing so could be a boon for some patients but raise health care costs for employers, said Christopher Condeluci, a health care lawyer who does legal and policy work around the Affordable Care Act and ERISA issues.

“Employers are worried,” said Pollitz. After getting laid off, “what if you’re uninsured and you wind up in the hospital six months in, and then the hospital social worker learns you’re eligible for COBRA and offers to pay your premium?”

KHN (Kaiser Health News) is a nonprofit news service covering health issues. It is an editorially independent program of KFF (Kaiser Family Foundation), which is not affiliated with Kaiser Permanente.

By Michelle Andrews, Kaiser Health News | July 20, 2020 at 10:41 AM

Qualifying health plan expenses may result in larger employment tax credits under the FFCRA and the CARES Act

Both the Families First Coronavirus Response Act (the FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act provide for payroll tax credits for the payment of certain employee wages until Dec. 31, 2020. Under both laws, the amount of these wages include "qualifying health plan expenses," which may result in a larger payroll tax credit.

Under the FFCRA, an employer is typically eligible for a fully refundable payroll tax credit that is equal to the qualified sick leave wages and the qualified family leave wages, plus allocable qualified health plan expenses paid between April 1, 2020 and Dec. 31, 2020.

Under the CARES Act, an employer whose operations is fully or partially suspended may be eligible for a payroll tax credit up to 50 percent of the wages paid (up to $10,000) between March 12, 2020 and Jan. 1, 2021. Again, these wages include allocable qualified health plan expenses.

Employers may offset the amount of their anticipated payroll tax credits under the FFCRA and the CARES Act against their deposit of employment taxes (including income tax withholdings) with the IRS. Since many employers are required to make these deposits with the IRS on a semi-weekly basis, employers should start determining their qualified health plan expenses as soon as possible.

Technical Jargon

Both the FFCRA and the CARES Act include the following provisions:

That the amount of the credit (under the FFCRA) or the amount of qualified wages (under the CARES Act) includes the employer's allocable "qualified health plan expenses.")
"Qualified health plan expenses" means "amounts paid or incurred by the employer to provide and maintain a group health plan (as defined in the Internal Revenue Code), but only to the extent that such amounts are excluded from the gross income of employees by reason of section 106(a) of the code.
The FFCRA and the CARES Act direct the Secretary of the Treasury to prescribe how qualified health plan expenses are allocated but also state that, "[e]xcept as otherwise provided by the Secretary, such allocation shall be treated as properly made if made on the basis of being pro rata among employees and pro rata on the basis of periods of coverage (relative to the periods such wages relate)."

Practical Advice

The provisions related to determining qualified health plan expenses for purposes of claiming payroll tax credits under either the FFCRA or the CARES Act are difficult to interpret. The following sections break these provisions down so that they are better understood. The first step is to determine which health plan expenses are eligible for a payroll tax credit. The second step is to allocate these expenses to the appropriate employees.

Eligible Health Plans

A "group health plan" under the Internal Revenue Code includes all plans that are subject to the continuation of coverage requirements under COBRA. As a result, the following employer-sponsored plans are included for purposes of determining the payroll tax credit under both the FFCRA and the CARES Act:

Medical/prescription drugs.
Dental.
Vision.
Medical flexible spending accounts (medical FSAs).
Health reimbursement arrangements (HRAs), except for qualified small employer HRAs (QSHRAs).
Employee assistance plans (other than referral-only EAPs).
Onsite medical clinics.
Eligible Expenses

Expenses incurred as a result of providing one of the above group health plans are only included for purposes of determining the payroll tax credit under the FFCRA and the CARES Act to the extent these amounts are excluded from the gross income of employees under the tax code. This includes amounts paid by the employer. It also includes amounts that are paid by employees through pretax salary reductions under a Section 125 Cafeteria plan. Amounts paid by employees on an after-tax basis, such as COBRA premiums, are not included for purposes of determining the payroll tax credit.

Allocating Expenses

The IRS issued a series of FAQs regarding the payroll tax credits under the FFCRA. The IRS also issued FAQs on the payroll tax credits under the CARES Act, but those FAQs don't address qualified health plan expenses. Since the statutory provision regarding the allocation of qualified health plan expenses is the same under the FFCRA and the CARES Act, it appears reasonable that the FAQs on how to allocate these expenses under the FFCRA would apply equally to the CARES Act.

Fully Insured Group Health Plans

The IRS's FAQs give the following three allocation methods with respect to fully insured group health plans:

The COBRA applicable premium for the employee typically available from the insurer (while the FAQs are silent on this, we do not recommend including the 2 percent administrative fee).
One average premium rate for all employees.
A substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage.
The FAQs only give an example of the second allocation method. Here is that example:

An Eligible Employer sponsors an insured group health plan that covers 400 employees, some with self-only coverage and some with family coverage. Each employee is expected to have 260 work days a year. (Five days a week for 52 weeks.) The employees contribute a portion of their premium by pre-tax salary reduction, with different amounts for self-only and family. The total annual premium for the 400 employees is $5.2 million. (This includes both the amount paid by the Eligible Employer and the amounts paid by employees through salary reduction.)

For an Eligible Employer using one average premium rate for all employees, the average annual premium rate is $5.2 million divided by 400, or $13,000. For each employee expected to have 260 work days a year, this results in a daily average premium rate equal to $13,000 divided by 260 or $50. That $50 is the amount of qualified health expenses allocated to each day of paid sick or family leave per employee.

Self-Insured Group Health Plans

With respect to self-insured group health plans, the FAQs give the following two allocation methods:

The COBRA applicable premium for the employee typically available from the administrator (again, while the FAQs are silent on this, we do not recommend including the 2 percent administrative fee).

Any reasonable actuarial method to determine the estimated annual expenses of the plan.

The FAQs do not, however, give any examples of the allocation methods for self-insured group health plans.

Exerpt from SHRM Artcile by: Tripp VanderWal © Miller Johnson
April 23, 2020

Medicare Eligible Beware: COBRA Is Dangerous When Electing Part B

Caution

Advocates have seen an increase in the number of Medicare beneficiaries who have delayed enrolling in Medicare Part B, thinking, erroneously, that because they are paying for and receiving continued health coverage under COBRA, they do not have to enroll in Medicare Part B. COBRA-qualified beneficiaries who have delayed enrollment in Medicare Part B do not qualify for a special enrollment period (SEP) to enroll in Part B after their COBRA coverage ends. (They may, however, qualify for a SEP to enroll in Part D at that time if the drug coverage they had under COBRA constitutes creditable coverage.) Only individuals who delay enrolling in Part B because they are covered under an employee group health plan (EGHP) by reason of "current" employment may take advantage of the SEP rules. Individuals on COBRA do not meet the definition of having current employment status.

Consequences

Medicare Part B – The consequences of delayed Part B enrollment can be severe.  Generally, the beneficiary who does not enroll during his or her initial enrollment period and who is not entitled to a SEP must wait to enroll in the next general enrollment period (January – March), with benefits starting on July 1 of that year. Further, there is a 10% late enrollment penalty added to the standard monthly premium for every 12 months of delayed enrollment in Part B. The penalty has no durational limit.

Under Part D, the penalty is 1% of the national base beneficiary premium in a given year times the number of full, uncovered months of eligibility without other creditable drug coverage. A Part D eligible individual must pay the late penalty if there is a continuous period of 63 days or longer at any time after the end of the individual's initial enrollment period during which the individual meets all of the following conditions: (1) The individual was eligible to enroll in a Part D plan; (2) The individual was not covered under any creditable prescription drug coverage; and (3) The individual was not enrolled in a Part D plan.

from Center of Medicare Advocacy

PPACA....IT'S TIME.....REPORTING HEALTH COVERAGE COST ON W-2

The provision that required employers to report the cost of Medical, Dental and Vision coverage was supposed to go in effect for reporting year 2011.  However, that was delayed and the IRS has issued guidance for reporting these amounts (2012-9) for 2012 W-2's.

In a nutshell, the IRS stated that all employers who have issued more than 250 W-2's will be required to show the value of the employer sponsored medical, dental and vision coverage on their employees 2012 W-2's.  The cost of coverage does not include contributions made to a Health Savings Account (HSA), Medical Savings Account (MSA) or Health Reimbursement Arrangements.

In calculating the cost of coverage to be reported, the IRS indicated that this amount would be the same amount used to calculate the COBRA cost, not including the 2% administration fee, if any.

Those employers who file less that 250 W-2's are exempt from this provision at least through 2012.

The big question is why does the IRS want this information?  They state it's for informational purposes only.  Two thoughts:  This could be a way for the Fed to determine if their is coverage in place in regards to the "no coverage penalty" or a way for the Fed to tax those "Cadillac Plans" in 2018.