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Updated: Department of Labor Issues Model Notices for COBRA Subsidy

March, 19 2009

Updated:  Since posting the article below, the Department of Labor has updated its website to clarify the use of the model notices.  We have updated our article accordingly and provided a link directly to the DOL's COBRA model notices web page.

Explanation of Notices

Previously we reported that the stimulus bill, or American Recovery and Reinvestment Act of 2009 (ARRA), provided for a subsidy of 65% of the premium cost for continuation coverage if the employee was involuntarily terminated on or after September 1, 2008. For more information on the subsidy provision, please read our article, available here. The law requires employers that sponsor a group health plan to notify their eligible former employees of their right to the subsidy. The Department of Labor (DOL) has now issued model notices for use in letting employees and qualified beneficiaries know about the subsidy.

The model notice forms are available in word-processing format from the DOL’s website (http://www.dol.gov/ebsa/COBRAmodelnotice.html) and below. A brief explanation of the forms follows. The forms target four different groups: (1) individuals who were involuntarily terminated on or after September 1, 2008 but who did not elect COBRA, or who elected COBRA but discontinued it (and their qualified beneficiaries); (2) individuals who were involuntarily terminated on or after September 1, 2008 and who are currently on COBRA coverage (and their qualified beneficiaries); (3) individuals who are involuntarily terminated after passage of the ARRA (February 17, 2009) and before January 1, 2010; and (4) individuals whose employers’ plans are not subject to COBRA but are subject to state laws providing for continuation coverage.

Individuals who did not elect COBRA, or who cancelled COBRA

Employers subject to COBRA must go back and determine their employees who were terminated involuntarily on or after September 1, 2008 and provide them and their qualified beneficiaries with notice of their right to a subsidy, even if the employee or his qualified beneficiaries did not elect COBRA when he was terminated, or if COBRA was elected but then cancelled. These individuals receive a second chance to elect COBRA and to receive the subsidy.

Coverage and the subsidy for these individuals will begin no earlier than February 17, 2009 and, under most employers’ plans, will begin on March 1, 2009.

The DOL refers to the notice employers must provide as the Notice in Connection with Extended Election Period.  A copy of the model notice is available here.

Individuals who have elected and still have COBRA coverage in place

Former employees and their qualified beneficiaries who elected COBRA and kept it in place must also receive notice of the subsidy if the former employee was involuntarily terminated on or after September 1, 2008. The subsidy will begin no earlier than February 17, 2009 and, under most employers’ plans, will begin on March 1, 2009.

This notice is referred to on the DOL website as the General Notice (Abbreviated Version).  A copy of the model notice is available here.

Individuals terminated through December 31, 2009

In addition to providing notices to former employees and their qualified beneficiaries, employers must also provide notice when any qualified beneficiary experiences any qualifying event any time up through December 31, 2009. That is, starting February 17, 2009 and through December 31, 2009, employers need to alter their COBRA notices to notify employees and their qualified beneficiaries of the subsidy. Notably, the DOL contemplates that the subsidy information must be provided to all qualified beneficiaries regardless of the reason for the qualifying event. Nevertheless, only qualified beneficiaries who are eligible for COBRA because of an involuntary termination will be eligible for the subsidy.

The notice to be used is referred to on the DOL website as the General Notice (Full Version).  A copy of the model notice is available here.

Individuals whose employers’ plans are not subject to COBRA

Beneficiaries of group health plans not subject to COBRA (generally those sponsored by employers with fewer than 20 employees) who lose coverage due to an involuntary termination are also eligible for the subsidy (but not for the extended notice and election period) of their state’s law provides for continuation coverage. South Carolina law provides for 6 months of continuation coverage when COBRA does not apply and requires that employers “meaningfully advise” their employees of the right upon termination. The ARRA allows the DOL to provide for the manner and method of notice of the subsidy for non-COBRA continuation coverage. The DOL’s explanation of the notice indicates that insurance issuers -- not employers -- must notify their insureds who become eligible for continuation coverage under state law. For insured plans, the issuer is the insurance company, and for self-insured plans the plan or employer remains responsible.

This notice is known on the DOL website as the Alternative Notice.  A copy of the model notice is available here.

Important points

The model notices are not designed to be sent out as-is, but must be modified by the employer to reflect the terms of employer’s group health plan. The notices to individuals who were terminated prior to February 17, 2009 must be sent by April 18, 2009. Employers whose plans are subject to COBRA and who fail to provide the notices are subject to the same penalties and liabilities as if they failed to provide COBRA notices altogether – individuals entitled to notice may sue for benefits and statutory civil penalties may be assessed. Employers may be reimbursed for the subsidies they provide through credits on their payroll taxes. The IRS has issued an updated form 941 on which to claim the subsidy. (See our previous article for a copy of the form.)

If you have questions about your organization’s obligations to provide or subsidize continuation coverage, please contact us.

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