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A Service of OnQue Technologies, Inc. |
The New Trade Act Of 2002
How will it affect your COBRA administration? |
December 19, 2002
Santa Rosa, CA |
In August, President Bush signed into law the Trade
Act of 2002 (the Act), which expands benefits available to workers who become
unemployed due to competition from foreign trade or the shift of production to
other countries. Specifically, the Act affects COBRA administration by
providing a second COBRA election period for workers who qualify for Trade
Adjustment Assistance (TAA) because of trade-related unemployment. The Act also
creates a tax credit for up to 65 percent of the premiums paid by TAA-eligible
workers for medical coverage, including COBRA.
Some aspects of how to comply with this new
law have yet to be addressed by the federal government, but this report
attempts to highlight the areas that may affect your COBRA administration
procedures.
Who is eligible for Trade Act
assistance?
Workers who have lost
their jobs, or had a reduction in hours, as a direct result of competition from
foreign trade or production being moved overseas may be eligible for TAA
benefits. These workers must apply for TAA certification through the Department
of Labor or designated state agencies before they can receive TAA benefits.
They may be certified as part of a group of employees, or a single worker may
apply for certification individually. Only TAA-certified workers who filed
applications for certification on or after November 4, 2002, are entitled to a
second opportunity to elect COBRA continuation coverage.
What is the special second COBRA election
period?
The Trade Act requires that
the employer or plan administrator make a second 60-day COBRA election period
available to TAA-certified former employees. An employee will qualify for this
second chance to elect continuation benefits if he:
1. has been
certified to receive TAA benefits on or after November 4, 2002, and within six
months of losing group health plan coverage;
2. has lost health
coverage because of a trade-related termination of employment, which resulted
in being TAA-certified; and
3. did not elect
COBRA coverage when it was offered during the first election period following
termination.
Who may receive COBRA coverage under the Trade
Act?
The Act does not provide
continuation coverage to any persons who would not have been eligible for such
coverage under existing COBRA rules. Only those former workers who were offered
COBRA at the time of their termination and who failed to elect coverage during
the first 60-day election period, are eligible to elect COBRA during the
special second election period. The former employee may elect continuation
coverage on behalf of eligible family members, who do not have the independent
right to elect COBRA coverage under the Act.
When does the second election period begin?
The special second COBRA election period
begins on the first day of the month in which the individual is certified to be
eligible for TAA benefits, so long as the election is made within six months
after the initial loss of coverage.
When does the COBRA coverage period
begin?
Once COBRA is elected, coverage begins on the first day of the
second election period. But because there is no provision in the Act making
coverage retroactive to the initial loss of coverage, confusion exists as to
how to measure the period of coverage: from the date of the initial loss of
coverage, or from the first day of the special second election period? If
coverage is measured from the initial loss of coverage date, then some
beneficiaries could receive COBRA for less than the minimum 18-month COBRA
coverage period. Further, the Act does not mention how to deal with extending
COBRA benefits to family members when second qualifying events occur (such as
death or divorce) during the initial COBRA coverage period.
Must the employer give notice of the TAA special second
election period?
Nothing in the Act
requires employers to notify TAA-eligible workers that they are entitled to a
second chance to elect COBRA coverage. Nevertheless, it is recommended that
notice of the circumstances that would trigger the special second COBRA
election period be included in the initial COBRA notification, as well as in
the plan's Summary Plan Description.
How does the 2002 Trade Act affect
HIPAA?
Because coverage is not
made retroactive to the initial loss of coverage, the Act specifies that the
period between the loss of health coverage and the beginning of the new special
COBRA election period not be counted when calculating the 63-day break in
coverage limitation under the Health Insurance Portability and Accountability
Act (HIPAA). (Under HIPAA, if a break in health insurance coverage is at least
63 days in duration, prior creditable coverage may be ignored.)
New Federal Tax Credit
The Act amends the Internal Revenue Code (added IRC
section 35) to provide a refundable tax credit for up to 65 percent of the
amount of the premium paid by eligible recipients for TAA benefits, including
COBRA coverage. The credit is available as of December 1, 2002. If the amount
of the tax credit is larger than the taxpayer's tax liability, then the IRS
will refund the overage.
Advance Credit Payments
The Act orders the Treasury Department to establish a program that
would advance premium payments directly to the plan in the amount of the tax
credit claimed by taxpayers on their individual income tax returns. Under this
program, which must be in effect no later than August 1, 2003, the COBRA
beneficiary would be liable for the payment of 35 percent of the premium - the
remaining 65 percent could be paid to the plan directly by the federal
government. As proposed, the advance credit program seems to create the
potential for payment and collection problems for employers and
plans.
Future Guidance from the IRS and
DOL
Employers and plan
administrators responsible for COBRA administration should watch for future
guidance from the IRS and the Department of Labor on how to administer COBRA
under the Act. Although currently the provisions apply only to workers affected
by trade-related layoffs, it is possible that similar benefits and tax credits
may be extended to other types of employees in the future. |
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This information is provided by
OnQue Technologies, Inc. for educational purposes only and does not constitute
legal advice. If legal advice or other professional assistance is required, the
services of a competent professional should be sought.
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