DOL Issues New Model COBRA Notices for Subsidy

DOL Issues New Model COBRA Notices for Subsidy
Some Notices Must Be Given By April 18, 2009

On March 19, 2009, the U.S. Department of Labor issued four new model COBRA notices to implement the COBRA subsidy provisions of the American Recovery and Reinvestment Act of 2009. These notices must be provided by employers who sponsor group health plans to individuals who become eligible for COBRA between September 1, 2008 and December 31, 2009. At least one of the notices must be provided by April 18, 2009 (see below). The notices may be used by any public or private employer that is subject to COBRA (whether through ERISA, the Internal Revenue Code or the Public Health Service Act).

Involuntarily terminated individuals (and their qualifying dependents) who experience COBRA qualifying events between September 1, 2008 and December 31, 2009 may be eligible for a subsidy on their COBRA premium equal to 65 percent of the premium. Some of them may also have the opportunity to re-elect COBRA if they never elected it or dropped it. More complete details about the COBRA subsidy may be found in our prior articles: "The New COBRA Challenge: Subsidies, Notices, and a Second Bite at the COBRA Apple" and "COBRA Subsidy Guidance Begins."

All four of the model notices provide information about the new COBRA subsidy. The new notices are:

A full version of a "General Notice" which must be distributed to all COBRA qualified beneficiaries, not just covered employees, who experience a qualifying event at any time between September 1, 2008 and December 31, 2009, regardless of the type of qualifying event. In other words, this new General Notice is not just for employees who are involuntarily terminated. It should go to all qualified beneficiaries (except those who can receive the abbreviated General Notice below). This notice includes a COBRA election form and a form for eligible individuals to elect the subsidy.
An abbreviated version of a General Notice that can be provided in lieu of the full version to COBRA qualified beneficiaries who experienced a qualifying event on or after September 1, 2008 and have already elected COBRA coverage. If such individuals are eligible for the COBRA subsidy, this notice notifies them of the subsidy and provides a form to elect the subsidy.
An "Alternative Notice" that may be used by group health insurers to send to individuals who become eligible for continuation coverage under state law. Employers generally need not be concerned with this notice.
A "Notice in Connection with Extended Election Periods" which must be sent to any COBRA qualified beneficiary who is eligible for the subsidy who had a qualifying event between September 1, 2008 and February 16, 2009. This notice gives such individuals a second opportunity to elect COBRA coverage; however, the coverage will only be effective as of the first COBRA coverage period after February 17, 2009 (generally, as of March 1, 2009), and will not be retroactive. This notice should be provided on or before April 18, 2009.

While the model notices are quite welcome (particularly given the looming April 18, 2009 deadline to provide notices to individuals who became qualified beneficiaries between September 1, 2008 and February 16, 2009), they cannot simply be adopted without modifications. Employers must review them carefully and ensure (among other things) that:

The notices reflect the group health plan coverages actually offered by the employer;
The notices reflect whether the employer will allow assistance eligible individuals to elect coverage other than the coverage they had when they were involuntarily terminated; and
The notices are clear that the subsidy does not apply to COBRA coverage offered through a medical flexible spending account under Internal Revenue Code Section 125.

In addition, employers who outsource their COBRA administration to third-party administrators should confirm that the administrator is using correct notices, is sending the notices to the appropriate individuals, and will meet the April 18 deadline for sending notices to individuals who must be given an opportunity to re-elect COBRA. Even if an employer outsources COBRA administration, it is still primarily responsible for ensuring that proper notices are sent, and sent in a timely manner. Penalties for failing to send COBRA notices on time can include a $110 per day fine for each day the notice is late.

Ice Miller will continue to monitor developments and will send future e-updates as guidance is issued. Meanwhile, for more information please contact Chris Sears, Tara Schulstad Sciscoe, Mary Beth Braitman, Terry Mumford, Rebecca Sczepanski or your Ice Miller LLP employee benefits attorney.