Stimulus Law Provides Cobra Subsidy

By: Richard T. Kennedy, Esquire - rtk@muslaw.com

The American Recovery and Reinvestment Act of 2009 was signed into law on February 17, 2009. Among other things, the Act provides a subsidy for COBRA premiums. The subsidy generally takes effect on March 1, 2009 and requires immediate action by employers and COBRA administrators. Some key points follow.

Subsidy

The subsidy is a 65% reduction in the amount of the premium an eligible individual is required to pay for up to 9 months of COBRA continuation coverage. An eligible individual will pay 35% of the COBRA premium to the employer, health plan or insurer. The employer, health plan or insurer pays the remaining 65% of the COBRA premium and is reimbursed in the form of a credit against the payroll taxes (income tax withholding and FICA taxes) the employer, health plan or insurer is required to pay to the Treasury Department.

Eligible Individuals

An eligible individual is an employee whose employment involuntarily terminates from September 1, 2008 through December 31, 2009 with eligibility for COBRA coverage along with that employee's spouse and dependents eligible for COBRA coverage. Under a means test, an individual with adjusted gross income of more than $145,000 ($290,000 for joint filers) is not eligible for the subsidy, and an individual with adjusted gross income between $125,000 and $145,000 ($250,000 to $290,000 for joint filers) is eligible for a reduced subsidy. An individual is permitted to permanently waive the subsidy.

Second Election

An eligible individual whose employment involuntarily terminated on or after September 1, 2008 and before February 17, 2009 and who declined to elect COBRA coverage is required to be provided with another COBRA election. Any COBRA coverage elected will be effective with the first coverage period after February 17, 2009, which typically would be March 1, 2009. This election would not extend the total period of otherwise available COBRA coverage.

New Notice Requirements

Notices explaining the new subsidy provisions and other COBRA provisions in the Act will have to be provided to qualified beneficiaries who lose coverage on or after September 1, 2008 and before 2010. Individuals who became entitled to elect COBRA coverage before the February 17, 2009 enactment date must be provided with new notices within 60 days of the enactment date. The Department of Labor has been directed to issue a model notice within 30 days of the enactment date.

Quick Action

- The Act provides little time for implementation. Employers and health plans should consider the following steps:

- Developing the procedures to identify eligible individuals whose COBRA qualifying event was an involuntary termination of employment.

- Identifying COBRA qualified beneficiaries who lost coverage from and after September 1, 2008 so that they may be properly notified of the new COBRA provisions.

- Working with COBRA administrators/vendors to review capabilities and modify existing COBRA notices and procedures and with payroll administrators/vendors to develop reporting and reimbursement mechanisms.

- Reviewing existing documents and plan descriptions for necessary revisions.


Please contact Richard T. Kennedy at (412) 456-2880 or rtk@muslaw.com for additional information.


This Meyer, Unkovic & Scott update is intended to provide information of general interest to the public and is not intended to offer legal advice. Meyer, Unkovic & Scott does not intend to create an attorney-client relationship by providing this information. Readers should consult with counsel before acting upon this information.

Two Recent Laws Relating to Employee Health Care: The New Mental Health Parity Act and Michelle’s Law

By: Antoinette C. Oliver, Esquire aco@muslaw.com and Quinn A. Johnson, Esquire qaj@muslaw.com

Employers should be aware of two recently enacted federal laws which relate to to employee health care. First, the new federal Mental Health Parity Act (the “Act”) was passed by Congress as part of the economic bail-out plan on October 3, 2008. The law seeks to bring parity to insurance coverage for treatment of mental health and mental illness (including substance abuse), as compared to that of physical aliments. The Act applies only to those enrolled in a group health plan of 50 of more employees that already provides benefits for both physical and mental health disorders. Under the new law, such insurance plans are prohibited from providing different deductibles, copayments, or limiting frequency of treatment and days of coverage for mental health care, as compared to physical ailment care. Mental health or substance use benefit coverage is not required, but if such coverage is offered it must be provided at parity. For most employers affected by the Act, the new law took effect on January 1, 2009.

Second, Congress has finally closed a health insurance loophole on whether dependent college students can lose medical coverage for taking time off from school for medical reasons. While most employee health plans only cover dependents over age 18 if they are full-time students (and under a certain age), a new federal law will protect dependent college students from losing their health insurance in the event of serious medical illness. “Michelle’s Law,” signed by President Bush on October 9, 2008, amends the Employee Retirement Income Security Act of 1974, the Public Health Service Act and the Internal Revenue Code of 1986 to allow full-time college students to take a year of medical leave without the risk of losing their insurance. The law will become effective in October 2009. The law does not compel insurance companies to cover any new individuals, but prevents them from dropping coverage under these circumstances.

Common Mistakes To Avoid in Layoffs and Terminations

By: Elaina Smiley, Esquire es@muslaw.com

In these tough economic times, many employers are looking for methods to cut costs to keep their businesses viable. Unfortunately, cost cutting often involves terminating or laying off workers. A business that is considering reducing its workforce needs to take preventative measures to reduce liability. Employers should avoid the following pitfalls when performing layoffs:

1. Not Analyzing the Demographics of Employees Selected.

During layoffs, employers must consider the impact that the reduction will have on employees in protected classifications such as age (40 and over), gender, race, color, religion, national origin, disability or other protected classification. For example, an employer selects a female age 55 with 15 years of service for termination but retains a white male age 25 with two years of service in the same position. Without good documentation of performance issues for the female selected, she may have a claim against the company for age and gender discrimination.

2. Not Being Truthful With Employees About the Reasons for Selection.

Employers must be honest with employees regarding the reasons for termination. If an employee is selected because he/she has performance issues, the company should tell the employee about the issues. Often those making the termination decisions want to spare the employee any hard feelings and do not address the performance problems as the reason for termination. This approach can harm the company if the employee files a claim. A good defense to a discrimination claim is that the decision to terminate the employee was not based on a protected classification, but rather was based on the employee’s poor performance. If the company does not tell the employee about the performance issues then the company may be viewed as not being truthful and this undercuts the company’s defense.

3. Offering Severance Payments Without Getting a Release of Claims.

Another mistake that companies often make is to offer severance payments without getting a release of claims. If a company is terminating an employee and pays money for which the employee is not otherwise entitled, it is wise to get a proper release of claims when the employee is in a protected classification or may have claim against the company. Securing a release in exchange for a monetary payment will reduce the potential for future claims.

4. Failing to Give the Statutorily Required Time Periods for Consideration and Revocation of Releases.

Employers who offer severance to employees in exchange for a release of claims must adhere to all employment laws in order to properly secure a release of claims. For example, under the Age Discrimination in Employment Act, in order to properly release an age discrimination claim, the release must give the employee 21 days to review the agreement and 7 days to revoke the agreement after the employee signs. In other situations where there are multiple layoffs with a severance payment, the release must provide the employee 45 days to review the agreement with 7 days to revoke after signing. Furthermore, when an company has multiple layoffs involving a release agreement, the employer must provide employees a list of the job titles and ages of all individuals selected for termination and the ages of all individuals in the same job classification or organizational unit who are not selected.

5. Not Properly Paying Out Wages Upon Termination

Finally, when employees are terminated, the employer must pay out all wages, vacation pay and commissions that are considered earned. Failure to properly pay earned wages can result in a claim under Pennsylvania Wage Payment and Collection Law and other employment laws.

Please contact Elaina A. Smiley at (412) 456-2821 or es@muslaw.com for additional information.

This Meyer, Unkovic & Scott update is intended to provide information of general interest to the public and is not intended to offer legal advice. Meyer, Unkovic & Scott does not intend to create an attorney-client relationship by providing this information. Readers should consult with counsel before acting upon this information.