Demystifying COBRA Subsidy Denials

From our friends at  Keller Benefits in the Washington DC area comes a good reference post on COBRA Subsidy Denials:

A number of our clients have asked me about the confusing issue of COBRA subsidy denials, and the quick answer was that the former employee should contact the DOL. The Employer does not need to notify the denied person (other than the Summary of ARRA sheet) about the denial process, but seeing how the DOL is handling things is helpful.

SHRM had this to say about this topic:

On May 22, 2009, the U.S. Department of Labor (DOL) issued guidance to help employees appeal claims for denial of the federal COBRA subsidy enacted under the American Recovery and Reinvestment Act of 2009 (ARRA), generally known as the stimulus package. This form is five pages in length and affected parties are encouraged to file online.

As part of the process, participants must attach copies of COBRA election notices; information regarding employers; plan sponsors of medical plans; insurance companies and/or plan administrators; the request for treatment as an assistance-eligible individual or other forms used to request the COBRA subsidy; insurance cards; payroll stubs showing deductions for health benefits; any documents relating to the date and circumstances of the termination and documentation regarding the denial of the premium reduction. Employers are encouraged to review their forms in any situations in which they intend to deny the subsidy. Employers are further encouraged to provide detailed explanations to employees when the subsidy is denied.

When in Doubt, Deny COBRA Subsidy
Employers also must carefully consider when they will deny the COBRA subsidy. The two reasons to deny the subsidy include a termination for gross misconduct (as provided under COBRA) and a voluntary termination. If an employer is in doubt regarding the status of a termination, the employer may be better served to deny the subsidy and let an employee appeal the decision. This approach is recommended due to the penalties that may apply if any employer “guesses” wrong. If an employer informs an employee that he or she is eligible for the COBRA subsidy, and it is subsequently determined that the individual was not eligible for the subsidy, the employer would have taken the payroll tax credit on its Form 990, and would not have been entitled to the 65 percent payment for the COBRA subsidy from an employee.

In circumstances when an employer is determined to be wrong, the employer will not be able to recover the 65 percent not paid by an employee; and an employer will also be liable for additional penalties for underpayment of payroll taxes. The payroll tax penalty for late deposits is 2 percent if one to five days late; 5 percent if six to 15 days late; and 10 percent if over 15 days late, as provided under Section 6656 of the Code and illustrated in Revenue Procedure 99-10.

These penalties can be severe, even when abated. Therefore, if an employer must choose between providing the federal subsidy when uncertain, or denying the subsidy, employers may prefer to deny the subsidy.

Lastly, it is also important to note that appeals for plans that are subject to COBRA (i.e., employers with 20 or more employees) are filed with the DOL. For claims with smaller employers where state continuation benefits exist, employees must file their appeals with the Department of Health and Human Services (HHS).

The Summary of ARRA Fact Sheet directs them to the DOL website if denied:

There is supposed to be an online form to download for review of denied subsidy but I couldn’t find it.

More articles can be read here at The Industry Radar:

Bottom line – As an employer then there is nothing special for to do except maintain your documentation.

Explore posts in the same categories: Employee Benefits, Healthcare, Human Resources

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One Comment on “Demystifying COBRA Subsidy Denials”

  1. jimmy1920 Says:

    I did not know about the hazard of allowing someone access to the subsidy that might be subsequently disallowed. Am I correct in assuming that the only way that could occur would be through an audit?

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