Posted on February 25, 2009 by Richard Tuschman

COBRA Subsidy: What It Means For Employers

The following is a reprint of a client alert authored by EBG employee benefits attorneys Joan Disler and Ray Kaplan. It should be of interest to all Florida employers.

COBRA Subsidy: What It Means For Employers

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (H.R. 1, S. 1) (the "Act"), which, among other things, amends the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").

The Act provides:

  • for a government subsidy of up to 65 percent of the COBRA premiums (including state "mini-COBRA" coverage) to certain eligible individuals (known as "assistance eligible individuals");
  • that the COBRA subsidy applies only to individuals who are eligible for COBRA due to an involuntary termination from employment from September 1, 2008, through December 31, 2009; and
  • that the COBRA subsidy applies for a maximum of nine (9) months of coverage (beginning on March 1, 2009).

The Act does not extend the otherwise applicable COBRA coverage period, nor does it adopt the proposal in the House bill to continue coverage through Medicare eligibility.

Employers should expect that these provisions will result in more COBRA-qualified former employees electing coverage under employer plans. Employers also should expect increased administration, since the Act imposes notice requirements (and potential penalties for non-compliance) and has administrative implications for almost all employers that require actions to be taken in March/April 2009. A general overview is provided below.

Eligibility

An individual is eligible for the COBRA premium subsidy if he or she:

  • is involuntarily terminated between September 1, 2008, and December 31, 2009;
  • elects COBRA coverage (when first offered or during the Special Election Period described below); and
  • has modified adjusted gross income not exceeding $145,000 per year ($290,000 for couples filing jointly) – the subsidy is phased out starting at modified adjusted gross income of $125,000 ($250,000 for couples filing jointly).

Special Election Period

Any eligible individual who became eligible for COBRA coverage on or after September 1, 2008, but did not elect to receive COBRA coverage, is eligible for the COBRA premium subsidy and must be given a second chance to elect COBRA coverage.

COBRA Subsidy

The government subsidy is not paid to the individual electing COBRA coverage. Rather, eligible individuals (or anyone else on behalf of the individual other than the individual’s employer) are to pay 35 percent of the required COBRA premium. The entity that provides the coverage and collects the individuals’ premiums must cover the remaining COBRA premium (i.e., 65 percent). That entity thereafter will receive reimbursement through a payroll tax credit, as follows:

  • if the group health plan is a multi-employer plan, the plan will be entitled to reimbursement;
  • if the group health plan is not a multi-employer plan and some or all of the coverage is not provided by insurance, the employer will be entitled to reimbursement; or
  • if the group health plan is not a multi-employer plan and all of the coverage is provided by insurance, the insurer will be entitled to reimbursement.
     

The COBRA subsidy ends on the earliest of

  • the date the individual becomes eligible for health coverage under another group health plan or Medicare;
  • nine (9) months after the first day of the first month to which the COBRA subsidy applies; or
  • the end of the maximum COBRA coverage period required by law.
     

Many employers currently provide a COBRA subsidy to employees who are involuntarily terminated pursuant to the terms of their severance plans or individual agreements. Given that the Act requires the individual to pay 35 percent of the premium for the reimbursement to be claimed, it is not clear whether the reimbursement is available if the eligible individual pays less than 35 percent of the premium.

Notice Requirements

On or before April 18, 2009, employers must provide notice advising of the availability of the COBRA premium subsidy to:

  • all individuals who became entitled to elect COBRA coverage during the period beginning on September 1, 2008, and ending on the day before enactment (February 16, 2009); and
  • any individual who became eligible for the Special Election Period described above.
     

All individuals who have a COBRA qualifying event between February 17, 2009, and December 31, 2009, must receive an updated COBRA notice (or the inclusion of a separate document with the COBRA notice) reflecting the availability of the COBRA premium subsidy. This must be provided within the usual COBRA notice deadline (generally 44 days after the qualifying event).

The Department of Labor is required to provide model notices no later than March 19, 2009.

The Act also provides that employers may allow (but are not required to allow) an individual eligible for the COBRA premium subsidy to elect a different COBRA coverage option from the one the eligible individual originally elected at the time of termination from employment. If offered, however, the other option cannot be more expensive than the option which the individual originally elected and must be an option offered to active employees.

Action Items

The COBRA provisions in the Act are effective for most employer-sponsored health plans beginning March 1, 2009. Accordingly, employers should immediately begin to:

  • Revise and update COBRA communication materials.
  • Provide written notice as required by the Act to individuals who are eligible for the subsidy by April 18, 2009.
  • Identify individuals entitled to the special enrollment period and provide notice allowing them to elect to receive the COBRA coverage and the premium subsidy.
    Implement administrative procedures to provide the subsidy (as applicable) and obtain the payroll tax credit.
  • Decide whether to allow eligible individuals to change their health plan options.
  • Develop procedures to reinstate the 100 percent COBRA premium charge if the individual continues to be eligible for COBRA coverage after termination of the subsidy.
  • Review severance plans and other agreements that provide an employer paid COBRA subsidy in light of the new government subsidy.
     

 

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Posted on December 10, 2008 by Richard Tuschman

Fourth DCA Reverses Ex Parte Injunction in Non-Compete Case

A trial court should not have entered a temporary injunction enforcing a non-compete agreement against a former employee on an ex parte basis, i.e., without notice to the employee, according to the Fourth District Court of Appeals in a recent decision, Bookall v. Sunbelt Rentals, Case No. 08-26291 (Fla. 4th DCA, December 3, 2008). 

The employer, a company that rents construction equipment, employed the former employee until February 7, 2008, under a written agreement containing a non-compete and non-solicitation provision. Shortly after the employee resigned, he began to work at a competing company. Upon discovering this, the employer sent the former employee a letter advising him of the breach of the agreement. The former employee’s counsel responded that the employee understood and would comply with his obligations under the agreement.

Upon learning that the former employee continued to work for the competitor, the employer filed a verified complaint with supporting affidavits and an ex parte emergency motion for temporary injunction. The motion sought a temporary injunction against the former employee and the competitor based on the noncompete and non-solicitation provisions of the employment agreement.  The duty judge assigned to the case entered the temporary injunction. 

In its opinion, the Fourth DCA noted that under the Florida Rules of Civil Procedure, a temporary injunction "may be granted without written or oral notice to the adverse party only if: (A) it appears from the specific facts shown by affidavit or verified pleading that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition; and (B) the movant's attorney certifies in writing any efforts that have been made to give notice and the reasons why notice should not be required."  Furthermore, "[e]very temporary injunction granted without notice . . . shall define the injury, state findings by the court why the injury may be irreparable, and give the reasons why the order was granted without notice if notice was not given." See Fla. R. Civ. P. 1.610(a). 

According to the Fourth DCA, the injunction suffered from a "fatal defect": it failed to give the reasons why the order was granted without notice.  The court noted that "[t]his deficiency could have been cured if the employer articulated in its complaint or motion reasons why notice should be dispensed with....Unfortunately for the employer, neither the complaint nor the motion cured the deficiency in this case."

One lesson from the Bookall decision is clear: follow the civil procedure rules carefully.  The rules are just that - rules - not guidelines or suggestions.  The employer's and the court's failure to articulate why the order was granted without notice required a reversal of the injunction order under a plain reading of Rule 1.610(a). 

One might surmise that there was no good reason why notice was not given to the former employee.  After all, the opinion notes that the former employee was represented by counsel.  How hard is it to fax, email and/or call opposing counsel before a hearing, even on an emergency motion?

But perhaps the former employee's counsel was on vacation or otherwise unavailable to receive notice of the hearing.  In that case, an ex parte injunction may have been appropriate, and the employer's and the court's failure to state why the order was granted without notice a mere oversight.

However, even where an ex parte injunction is appropriate, employers and their counsel should be aware that it may be short-lived.  Under Fla. R. Civ. P. 1.610(d), "[a] party against whom a temporary injunction has been granted may move to dissolve or modify it at any time. If a party moves to dissolve or modify, the motion shall be heard within 5 days after the movant applies for a hearing on the motion."  Thus, if a court enters a temporary injunction on an ex parte basis, the employer's counsel should clear his calendar for the next week.  The employee is entitled to a file a motion to dissolve and obtain an expedited hearing, and he may stand a good chance of getting the injunction modified or dissolved entirely once he tells his side of the story. 

 

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