Practice Management & Allied Staff News & Materials
Practice Management Matters - May/Jun 2009
May 29th, 2009
Question: What does the term "involuntary termination" imply in relation to the new COBRA regulations?
Answer: The economic stimulus legislation signed into law by President Obama on February 17th, "The American Recovery and Reinvestment Act of 2009," contains COBRA subsidies for employees who are involuntarily terminated between September 1, 2008 and December 31, 2009. The Department of Labor provided model language for the notice on March 31. The Notice contains additional guidance on involuntary terminations, assistancee ligible individuals (AEI), calculation of the subsidy amount, waiving premium assistance and extended election periods with respect to the ARRA COBRA subsidy.
This COBRA subsidy applies to all employers that maintain a group health plan regardless of whether they are currently subject to the general health care continuation rules under COBRA. Involuntary termination excludes instances of gross misconduct. However, in addition to someone who has been laid off, if someone is terminated involuntarily due to poor job performance, they would also be eligible for a 65 percent, nine-month COBRA subsidy. Employers are then able to immediately include the amount of the COBRA subsidy as a credit against their payroll taxes, using Form 941 or Form 941C. If the amount of the COBRA subsidy exceeds the amount of payroll taxes, employers will receive a direct payment of the difference from the federal government.
The Notice provides some useful guidance on whether some situations constitute involuntary terminations for purposes of the COBRA subsidy. For example, involuntary terminations can include an employer's failure to renew a contract, termination of an employee who is absent from work due to illness or disability, an employee's voluntary termination in response to a material negative change in employment, such as transferring a job to another state or quitting in response to a reduction in hours. An employee's voluntary resignation or retirement, in response to an employer solicitation for volunteers prior to making layoffs, is also an involuntary termination if the employer indicates that, after a period in which an incentive to resign or retire is provided, a certain number of remaining employees in the employee's group will be terminated. Finally, a termination that is classifi ed as voluntary or as a resignation can be an involuntary termination if the facts and circumstances indicate that, without the resignation, the employer would have terminated the employee, and the employee knew that he or she would be terminated unless he or she resigned.
Furthermore, employees who were involuntarily terminated between September 1, 2008 and February 16, 2009, and either declined COBRA or elected but subsequently discontinued COBRA, are entitled to a 60-day extended election period in which they may elect COBRA at the reduced rate. This right applies to all qualified benefi ciaries. For example, someone who was terminated on December 1, 2008 elected self-only COBRA continuation coverage, the employee's spouse and dependent children would now be entitled to the 60-day extended election period, in which they will have a second chance to elect COBRA. Employees who were involuntarily terminated between September 1, 2008 and February 16, 2009, and still have a period of time in which to elect COBRA continuation coverage under their original COBRA notice, should receive a notice about the extended election period. Please see the "Notice in Connection with Extended Election Periods."
If the individual elects under the original COBRA notice, coverage would extend back to the date the coverage was lost. If the individual elects under the extended election period notice, coverage would extend back to only the first period of coverage beginning on or after February 17, 2009. In either event, the COBRA subsidy would apply only for coverage periods beginning on or after February 17, 2009.
AAOMS will continue to monitor the federal regulations and notify the membership of updated information, regulations and model notices. You are encouraged to check with your state regulations as well as examine your severance and COBRA policies to determine how you will comply with the new requirements. Copies of all of the COBRA Model Notices can be found at www.dol.gov/ebsa/COBRAmodelnotice.html; Further information about COBRA can be found at www.dol.gov/ebsa/cobra.html.
This answer was adapted from VedderPrice, February 17, 2009 issue of Employee Benefits Briefing and Quarles & Brady, LLP, February 2009 and April 2009 issues of Employee Benefits Law. For more information, please visit www.vedderprice.com/docs/pub/1f1e7dc7-4eef-4853-800d-c65e2b7aa493_document.pdf ; www.quarles.com/Publications/Detail.aspx?publication=494 and www.quarles.com/publications/detail.aspx?publication=473.