The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Assistance Eligible Individual (AEI) under Notice 2009-27.
In order to be an AEI, an individual’s job loss must result from an involuntary termination after August 31, 2008 and before January 1, 2010. It is irrelevant when the loss of coverage under the group plan happens, the involuntary termination must occur during that period. The individual must be eligible for continuation coverage at any point during that period and must elect COBRA continuation coverage. Therefore, an employee may be terminated during the eligibility period, but still not an AEI since the individual’s coverage doesn’t terminate until after December 31, 2009.
A qualified beneficiary is an individual covered under the group health plan on the day before the involuntary termination. There are exceptions in the case of children born to or adopted by covered employees during COBRA continuation coverage or in some situations where an individual was wrongfully denied continuation coverage.
If an employer provides health coverage to terminated employees on the same terms as it provides to active employees as part of severance benefits to terminated employees, the loss of coverage does not occur until the employer-provided coverage is no longer on those terms. If the employer considers the payment for the coverage for the employee “to be the provision of COBRA continuation coverage on behalf of the involuntarily terminated individual,” then the loss of coverage occurs the day before the provision of COBRA continuation coverage begins.
Assume an individual is involuntarily terminated on November 15, 2009 with normal coverage continued through the end of November. If six months health coverage is included as part of the severance benefits, the loss of coverage occurs May 31, 2010 and the individual cannot be an AEI. If the employer considers the payment to be payment of COBRA benefits on behalf of the employee, the loss of coverage occurs November 30, 2009, and the employee could become an AEI.
Similarly, under federal COBRA coverage, if there is no provision for an optional extension of required periods under §4980B(f)(8) of the Internal Revenue Code of 1986 (IRC), the loss of coverage is deemed to occur on November 15, 2009, the date of involuntary termination. An optional extension of required periods under IRC §4980B(f)(8) would result in loss of coverage being deemed to occur on May 31, 2010 (not May 31, 2009 as indicated in the answer to question 14 in Notice 2009-27).
Involuntary termination of an employee following another qualifying event generally does not qualify the qualified beneficiary from the first event to be an AEI. For example, if an employee is divorced after August 31, 2008 and before January 1, 2010 (a more inclusive period than indicated in Notice 2009-27) resulting in a loss of health coverage for the spouse and the spouse elect COBRA coverage, the later involuntary termination of the employed individual does not allow the spouse to be an AEI since the qualifying event was the divorce, not the involuntary termination.
An employer may offer continuation coverage on a voluntary basis that is not required under federal COBRA or similar state laws as defined in ARRA. An employee electing coverage under such a plan cannot be considered an AEI.
An individual may become an AEI more than once and is eligible for up to nine months of premium reduction for each involuntary termination.
The fact that an otherwise eligible individual does not elect COBRA coverage until after December 31, 2009, does not necessarily disqualify the individual from eligibility as an AEI, as long as the COBRA continuation coverage begins after August 31, 2008 and before January 1, 2010.
An employee’s death is not considered an involuntary termination and therefore a deceased employee cannot be an AEI.