COBRA Continuation Coverage: New Requirements for Hospitality Employers Alert - February 26, 2009
COBRA Continuation Coverage: New Requirements for Hospitality Employers
February 26, 2009
Maria D. Lumb- Washington
The American Recovery and Reinvestment Act of 2009 imposes new requirements on all employers providing COBRA continuation coverage. Employers must act quickly to comply with the new requirements, which became effective February 17, 2009. Most notably, employers will be required to provide a 65 percent subsidy on premiums for COBRA continuation coverage to eligible COBRA continuation coverage recipients for up to nine months. In connection with the subsidy, new rules regarding notice to eligible individuals and COBRA coverage elections apply for COBRA continuation coverage, effective February 17, 2009.
The Subsidy
What is the subsidy?
The subsidy is a 65 percent price reduction for the COBRA continuation coverage premium for up to nine months. It is initially paid for by the employer, who may then claim the subsidy amount as a credit against federal tax withholding and payroll taxes.
Who is eligible?
Employees and their eligible spouses and dependents who became (or become) eligible for COBRA continuation coverage between September 1, 2008 and December 31, 2009, due to an employee’s involuntary termination of employment, are eligible for the subsidy.
The subsidy is phased out for individuals with a modified adjusted gross income over $125,000 ($250,000 for joint filers) for the taxable year in which the subsidy is received. Individuals who exceed these limits will incur tax on a portion of the amount of the subsidy received, based on their modified adjusted gross income.
How long is the subsidy available?
Generally, an eligible individual may take advantage of the subsidy for up to nine months. However, the nine-month period may be cut short upon the expiration of the maximum COBRA continuation coverage period (from the initial qualifying event) or upon the individual becoming entitled to coverage under another group health plan or Medicare.
A Special Election Period
Who is eligible?
Individuals who would have been eligible for the subsidy – those employees whose employment has been involuntarily terminated since September 1, 2008, but had not elected COBRA continuation coverage as of February 17, 2009 – have a special election period for COBRA continuation coverage. The election period begins on February 17, 2009, and ends 60 days after the notice of the Special Election Period is provided to the individual.
What does the Special Election provide?
If an employee elects COBRA continuation coverage during this Special Election Period, the employee will commence COBRA continuation coverage with the first period of coverage beginning after February 17, 2009 (March 1 for employers with monthly coverage periods). The COBRA continuation coverage will end no later than the day the COBRA continuation coverage would have ended if the employee had originally elected COBRA continuation coverage based on the date of the original qualifying event, absent the Special Election Period.
Low-Cost Health Plan Options
One of the only optional COBRA-related provisions of the Act allows an employer to permit qualified beneficiaries who are eligible for the subsidy to elect a lower-cost health plan option, if any, available under the employer’s group health plan. However, this will not be an option for (a) coverage that provides only dental, vision, counseling or referral services, (b) a flexible spending arrangement, or (c) coverage for services or treatments furnished in an on-site medical facility maintained by the employer and that consists primarily of first-aid services, prevention and wellness care, or similar care.
New Notice Requirements
In connection with providing the subsidy and offering the Special Election Period, employers are required to notify individuals terminated between September 1, 2008 and December 31, 2009 about the availability of the subsidy, the availability of any lower-cost health plan options and the availability of the Special Election Period. Additionally, the employer is required to inform such individuals of their responsibility to notify the group health plan administrator of eligibility under another group health plan or Medicare, and the penalty for failure to provide such notice.
Next Steps
The Department of Labor has been instructed to provide form documents to assist employers with compliance with the new notice requirements. Those form documents are expected in the next few weeks. In the meantime, employers need to implement the new COBRA continuation coverage rules and work with their internal HR managers, as well as their external COBRA administrators, to ensure compliance with the new requirements.
In most hotel and hospitality project management agreements, regardless of whether it is the owner or operator that is, for legal purposes, the employer of the employees, the operator establishes and controls all aspects of employee compensation, including benefits. In any event, it is essential for both owner and operator to be fully aware of these new requirements, which have both compliance and cost/cash flow impact ramifications.
If you have any questions about the new COBRA continuation coverage rules, the employee benefits lawyers in the Global Hospitality, Resort and Timeshare Group at Holland & Knight are ready to assist.
For more information, contact:
Maria Lumb
202.457.5944
maria.lumb@hklaw.com
toll free: 1.888.688.8500
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