American Recovery and Reinvestment Act Includes COBRA Changes

The American Recovery and Reinvestment Act of 2009 (“ARRA”) provides for premium reductions and additional election opportunities for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. The premium reduction applies to periods of health coverage starting on or after February 17, 2009 and lasts for up to nine months.


COBRA gives employees who lose their jobs, including their health benefits, the right to purchase group health coverage provided by the plan under certain circumstances.

If the employer continues to offer a group health plan, the employee and his or her dependants can keep their group health coverage for up to 18 months by paying group rates. The COBRA premium may be higher than what the individual was paying while employed, but in general, the cost is lower than that for private, individual health insurance coverage.

The plan administrator must notify affected employees of their right to elect COBRA. The employee and his or her dependants each have 60 days to elect the COBRA coverage, otherwise they lose all rights to COBRA benefits.

It is important to note that COBRA generally does not apply to plans sponsored by employers with less than 20 employees. However, many States (including Nebraska) have similar requirements for small plans providing benefits through an insurance company. The premium reduction is available for plans covered by these State laws.

Changes Regarding COBRA Continuation Coverage Under ARRA

Premium Reduction:  The premium reduction for COBRA continuation coverage is available to “assistance eligible individuals.”

An “assistance eligible individual” is the employee or a member of his or her family who:

·         is eligible for COBRA continuation coverage at any time between September 1, 2008 and December 31, 2009;

·         elects COBRA coverage; and

·         is eligible for COBRA as a result of the employee’s involuntary termination between September 1, 2008 and December 31, 2009.

Those who are eligible for other group health coverage (such as a spouse’s plan) or Medicare are not eligible for the premium reduction. There is no premium reduction for premiums paid for periods of coverage prior to February 17, 2009.

ARRA treats assistance eligible individuals who pay 35 percent of their COBRA premium as having paid the full amount. The premium reduction (65 percent of the full premium) is reimbursable to the employer, insurer or health plan as a credit against certain employment taxes. If the credit amount is greater than the taxes due, the Secretary of the Treasury will directly reimburse the employer, insurer or plan for the excess.

The premium reduction applies to periods of coverage starting on or after February 17, 2009. A period of coverage is a month or shorter period for which the plan charges a COBRA premium. The premium reduction starts on March 1, 2009 for plans that charge for COBRA coverage on a calendar month basis. The premium reduction for an individual ends upon eligibility for other group coverage (or Medicare), after 9 months of the reduction, or when the maximum period of COBRA coverage ends, whichever occurs first. Individuals paying reduced COBRA premiums must inform their plans if they become eligible for coverage under another group health plan or Medicare.

Special COBRA Election Opportunity:  Individuals involuntarily terminated from September 1, 2008 through February 16, 2009 who did not elect COBRA when it was first offered OR who did elect COBRA, but are no longer enrolled (for example because they were unable to continue paying the premium) have a new election opportunity. This election period starts on February 17, 2009 and ends 60 days after the plan provides the required notice. This special election period does not extend the period of COBRA continuation coverage beyond the original maximum period. COBRA coverage elected in this special election period begins with the first period of coverage beginning on or after February 17, 2009. Additionally, this special election period opportunity does not apply to coverage sponsored by employers with less than 20 employees that is subject to State law.

Notice: Plan administrators must provide notice about the premium reduction to individuals who have a COBRA qualifying event during the period from September 1, 2008 through December 31, 2009. Plan administrators may provide notices separately or along with notices they provide following a COBRA qualifying event. This notice must go to all individuals, whether they have COBRA coverage or not, who had a qualifying event from September 1, 2008 through December 31, 2009.

Individuals eligible for the special COBRA election period described above also must receive a notice informing them of this opportunity, which must be provided within 60 days following February 17, 2009.

Expedited Review of Denials of Premium Reduction: Individuals who are denied treatment as assistance eligible individuals and thus are denied eligibility for the premium reduction (whether by their plan, employer or insurer) may request an expedited review of the denial by the U.S. Department of Labor. The Department must make a determination within 15 business days of receipt of a completed request for review. The Department is currently developing a process and an official application form that will be required to be completed for appeals.

Switching Benefit Options: If an employer offers additional coverage options to active employees, the employer may (but is not required to) allow assistance eligible individuals to switch the coverage options they had when they became eligible for COBRA. To retain eligibility for the ARRA premium reduction, the different coverage must have the same or lower premiums as the individual’s original coverage. The different coverage cannot be coverage that provides only dental, vision, a health flexible spending account, or coverage for treatment that is furnished in an on-site facility maintained by the employer.

Income limits: If an individual’s modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for joint filers), then the amount of the premium reduction during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), the amount of the premium reduction that must be repaid is reduced proportionately. Individuals may permanently waive the right to premium reduction but may not later obtain the premium reduction if their adjusted gross incomes end up below the limits.

Fact Sheet: COBRA Premium Reduction

U.S. Department of Labor

February 26, 2009

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FTC Suspending Enforcement of the “Red Flag Rules” Until May 1, 2009


            The FTC has announced that it is suspending enforcement of the “Red Flag Rules” until May 1, 2009.  This will give organizations more time to develop and implement their written programs for identity-theft prevention.  The rules require that financial institutions and creditors have a written program to prevent, detect, and diminish identity theft.  The rules will also apply to many health care organizations.  They were originally scheduled to take effect on November 1, 2008.  During the FTC’s outreach efforts regarding the rules, officials determined that some entities did not know they were covered and had not started any efforts to comply with the rules.  The delayed enforcement will allow all entities covered by the rules, including many health care organizations, to make sure that they are in full compliance by May 1, 2009.





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Congress Mandates Mental Health Parity in Insurance Coverage

Amidst the throes of the financial bailout, Congress has approved legislation requiring insurers and employers to cover mental illness, including alcohol and drug addiction, at levels on par with physical illness. 

For example, the bill requires parity in deductibles, co-pays, and out-of-pocket expenses, and it will eliminate limits insurers commonly impose for mental illness, such as 30 visits or 30 days in hospital, in the absence of similar limits for medical and surgical coverage.

The new law does not force employers or health plans to cover mental illness or alcohol or drug abuse.  And it does not apply to employers with fewer than 50 employees.  Many states already have some form of parity law, but self-insured employers have not been reached by state parity laws. 

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 was saved from death upon Congressional adjournment when it ended up getting tacked onto the bailout bill in the Senate, which then passed in the House.



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Health Care Providers’ Deadline to Implement “Red Flag Rules” Identity Theft Programs Is November 1, 2008

Health care providers have until November 1, 2008, to implement programs to address the issue of identity theft, a growing problem that can have particularly disastrous results in the medical context.  This requirement is imposed by amendments — known as the “Red Flag Rules” — to the federal Fair and Accurate Credit Transactions Act.

In short, a Red Flag Rules program must be designed to identify, detect, and respond to “red flags,” namely those patterns, pratices, or specific activities that could indicate identity theft.

Many health care providers are not aware of the Red Flag Rules because the implementing regulations were jointly promulgated by the Federal Trade Commission (FTC) and various federal banking regulators rather than CMS or other agencies providers are likely to monitor. 

The Red Flag Rules apply to “creditors” that have “covered accounts.”  Although the definitions of these terms are complex, and are not crystal clear, the definitions themselves and FTC guidance indicate that health care providers would fall within the relevant definitions and therefore be subject to enforcement by the FTC under the Fair Credit Reporting Act.

The five basic required elements of a Red Flag Rules program are as follows:

1.)  Identify red flags (for example, by considering billing practices and any history of suspicious patient information activity)

2.)  Detect red flags (for example, by having authentication processes to verify patient identity, changes of address, etc.)

3.)  Respond to red flags (for example, by seeking verification or monitoring patient accounts when suspicious activity occurs, and involving law enforcement when warranted)

4.)  Update the program (for example, by responding to changes in methods of identity theft, incorporating new developments in identity theft prevention, and responding to alerts from law enforcement) 

5.)  Approval and Oversight (the program must have the initial approval of the entity’s board of directors or similar governing body, it must be overseen by an employee of at least senior management level status, it must include staff training, and it must include oversight of service provider arrangements)

The Red Flag Rules afford entities flexibility in designing programs appropriate to their size and complexity and the nature and scope of their operations.



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