Guidance on “involuntary termination” for COBRA premium reduction expected soon, Treasury official predicts
The Treasury Department and the IRS anticipate issuing guidance on what is “involuntary termination” for the new COBRA premium reduction in the next few weeks, Kevin Knopf, attorney-advisor, Treasury Office of Benefits Tax Counsel, said on March 12. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) created the temporary COBRA premium reduction (also known as a “subsidy”) for individuals who are involuntary terminated from employment and a payroll tax credit for employers to recover their costs. Knopf spoke during a webcast on the new COBRA reduction sponsored by the American Bar Association.
Premium reduction. COBRA allows individuals to temporarily extend employer-provided group health coverage after they leave employment. Under the 2009 Recovery Act, an individual who is involuntarily terminated from employment may pay 35 percent of the premium and be treated as paying the full amount. Employers will pay the remaining 65 percent and be reimbursed through a payroll tax credit.
Participation in COBRA is traditionally low because of the high cost of continuation coverage, Edwin Park, senior fellow, Center on Budget and Policy Priorities, Washington, D.C., told CCH. “The average employer-based premium for health coverage for a family is $13,000 a year.”
Involuntary termination. To take advantage of the premium reduction, an individual must be eligible for COBRA as a result of an involuntary termination from employment at any time from September 1, 2008 through December 31, 2009. The individual must also elect COBRA coverage.
The spouse and any dependents of the dislocated worker may also be eligible for the COBRA premium reduction. “If an individual had self-only coverage at the time of involuntary termination, only the self-covered person will be eligible for the premium assistance,” Knopf said.
The House Ways and Means Committee has provided some information on what is involuntary termination in frequently asked questions (FAQs) on its web site. “Involuntary termination is a termination at the direction of the employer...termination for gross misconduct will generally disqualify an employee and his/her family from COBRA coverage.” The Ways and Means Committee also noted that “death is not an involuntary termination” for purposes of the COBRA premium reduction.
Knopf declined to say how the government will define involuntary termination. Knopf predicted that guidance will be issued before the end of March or in early April, most likely in the form of an IRS Notice.
Nine months. The COBRA premium reduction is available for nine months. The IRS intends to clarify when the nine-month period starts, Knopf said.
“The premium reduction in the 2009 Recovery Act does not extend the maximum COBRA coverage period of 18 months,” Kathryn Bakich, national director, Health Care Compliance, The Segal Company, Washington, D.C., cautioned. Moreover, the premium reduction “cuts off if the individual becomes eligible for Medicare or other group coverage.”
Payroll tax credit. Employers recover their 65 percent premium assistance through a payroll tax credit. For most employers, the credit will be claimed on Form 941, Patricia McDermott, special counsel, IRS, Office of Associate Chief Counsel/Division Counsel, Tax Exempt and Government Entities, said. The IRS has revised Form 941 to reflect the COBRA subsidy.
“Until the 35 percent payment is received (by the employer), there is no subsidy eligible for reimbursement,” McDermott explained. “Eligibility for reimbursement is contingent on receipt of the 35 percent (premium).” Employers cannot assume that the payment will be received, McDermott cautioned.
If the amount of COBRA premium reduction exceeds the employer's tax liabilities for the quarter, the employer can choose to have the excess refunded or applied to the next quarter. “Refunds will be issued in a couple of weeks,” McDermott said.
Second chance. The 2009 Recovery Act gives some dislocated workers a “second chance” to elect COBRA coverage, Amy Turner, senior health law specialist, DOL Office of Health Plan Standards and Compliance Assistance, said. This applies to individuals involuntarily terminated between September 1, 2008 and February 16, 2009 who did not elect COBRA when it was first offered or dropped it because they could not pay the premiums.
The Treasury and Labor Departments are preparing a model notice employers can use to advise individuals about the special election. The model notice will be released in the next several days, Turner said.
Reprinted with permission. © CCH
(Submitted March 18, 2009)
<p> Guidance on “involuntary termination” for COBRA premium reduction expected soon, Treasury official predicts The Treasury Department and the IRS anticipate issuing guidance on what is “involuntary termination” for the new COBRA premium reduction in the next few</p>
Guidance on “involuntary termination” for COBRA premium reduction expected soon, Treasury official predicts
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