The Guidance in Brief

According to CMS, whether a plan can receive the subsidy for an individual on COBRA depends on whether the employee continues to have "current employment status" (under the Medicare Secondary Payer law) after the COBRA qualifying event. If the employee does not have current employment status after the qualifying event, the plan can receive the subsidy for Medicare Part D-eligible retirees and dependents. This means a plan sponsor can receive the RDS for:

• A former employee on COBRA who is Part D-eligible and not enrolled in a Part D plan. An example is an employee who is Part D-eligible who terminates coverage and elects COBRA.
• Spouses and dependents on COBRA if their COBRA coverage is based on the employment of an individual who is no longer in current employment status. An example is a spouse of an active employee who elects COBRA after the employee's death. CMS says that the employee does not have current employment status, so the plan could get a subsidy for the spouse if the spouse is eligible for Part D and not enrolled in Part D. By contrast, a plan cannot receive a subsidy for an individual who is a spouse on COBRA due to divorce, if the employee remains in active employment.

To include a COBRA person for the subsidy, the plan's actuary has to account for any additional premium amount that the COBRA recipient pays in the actuarial equivalence "net test."

Implications of this Guidance

Many plans may not have included individuals who are receiving COBRA in their retiree lists because it was not known until now that they could do so. In light of this guidance, plan sponsors may want to consider adding COBRA recipients to their retiree lists — assuming the plan is still actuarially equivalent after taking those individuals into account.

As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for authoritative advice on the interpretation and application of the Medicare Modernization Act (MMA) and relevant regulations. The Segal Company can be retained to work with plan sponsors on issues related to Medicare Part D.

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