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 End of Premium Reduction Period under Notice 2009-27.
Premium reduction generally continues until the earliest of:
- The first date the assistance eligible individual (AEI) becomes eligible for other group health coverage or Medicare coverage;
- Nine months after the first day of the first month the premium reduction provisions apply; or
- When the AEI is no longer eligible for COBRA continuation coverage.
Under 1. above, eligibility for group coverage is the deciding factor. An AEI who is eligible for other group health coverage but elects not to participate in the plan, eligibility for premium reduction ends. The premium reduction eligibility would not end, however, until after the end of any waiting period imposed by a new employer or spouse’s employer.
If individuals are offered retiree coverage under the same plan as the COBRA continuation coverage, the offer has no impact on eligibility for premium reduction. If individuals are offered coverage under a different plan, eligibility may be affected. If the involuntary termination leading to the COBRA coverage occurred after February 16, 2009, then the individual is not eligible for premium reduction. If the involuntary termination occurred after August 31, 2008 and before February 17, 2009, then the individual is only ineligible for continuation coverage “if the period the individual is given for enrolling extends to at least February 17, 2009.”
Coverage under a Health Reimbursement Account (HRA) that qualifies as a Flexible Spending Arrangement (FSA) under §106 of the Internal Revenue Code of 1986 (IRC) does not end the period of eligibility for premium reduction. If the HRA does not qualify as an FSA under IRC §106, then coverage under the HRA terminates eligibility for premium reduction.
Even though an individual must be terminated before January 1, 2010 to be an AEI, premium reduction may continue after December 31, 2009, depending on the first date of eligibility.
Death of a terminated employee does not end the eligibility of an otherwise qualified beneficiary spouse and dependent children.
Failure to pay the required premium for COBRA coverage by the end of any applicable grace period ends qualification for COBRA continuation coverage and also eligibility for premium reduction.
An individual currently enrolled in Medicare may become a qualified beneficiary eligible for COBRA coverage as a result of an involuntary termination, but is not eligible for premium reduction.
If an AEI fails to notify an employer of eligibility for group health coverage and continues to receive a premium reduction, the employer is not required to refund the credit taken on Form 941. An exception would be if the employer knew of the eligibility for such coverage. The AEI may be subject to a penalty of 110% of the premium reduction received, unless the failure to notify the employer was due to reasonable cause and not willful neglect.
An AEI who is eligible for premium reduction more than once may receive up to nine months of eligibility for premium reduction for each involuntary termination. The period is not extended, however, “by a second qualifying event, such as a divorce, following an involuntary termination” which qualified the individual as an AEI.