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COBRA Premium Subsidy Is Extended Again

March 09, 2010

On March 2, 2010, the "Temporary Extension Act of 2010" (the "Act") became law. While not one of the more creatively named pieces of federal legislation, the Act makes several significant changes and clarifications with respect to the 65% governmental premium subsidy that has been in effect since February 2009 for health plan continuation coverage of involuntarily terminated employees. For a discussion of the rules regarding the premium subsidy, please see the Godfrey & Kahn Client Updates on "COBRA Subsidy Extended" and "New Health Plan Continuation Rules Require Employers' Immediate Attention".

1. Subsidy Extension through March 31, 2010. The Act's most significant change is its extension of the subsidy to involuntary terminations of employment that occur through March 31, 2010. Previously, the subsidy was set to expire for involuntary terminations occurring after February 28, 2010.

2. Subsidy and New Election Opportunity for an "Affected Employee." Additionally, the Act extends the subsidy to an employee who (a) lost (or loses) health coverage due to a reduction in hours during the September 1, 2008 through March 31, 2010 period, and (b) then experiences an involuntary termination of employment on or after March 2, 2010 but before April 1, 2010 (unless extended). Any such "affected employee" will be eligible for the subsidy for periods of coverage beginning on or after the date of the termination of employment. However, the affected employee's maximum COBRA continuation coverage period will be measured from the loss of coverage due to the reduction in hours.

Under this new rule, for any affected employee who did not make (or made and later discontinued) a COBRA election on the basis of the reduction in hours, the involuntary termination on or after March 2, 2010 is treated as a qualifying event. Consequently, the affected employee will have a new election opportunity. However, an affected employee need not make a payment for COBRA continuation coverage during the period between the reduction in hours and involuntary termination.

A health plan administrator must provide a new notice to each affected employee to alert him or her (and any eligible spouse or dependent(s)) of the new election opportunity. The notice must be provided within 60 days of the date of the involuntary termination of employment. Presumably, the Department of Labor will issue a model notice for this purpose.

Don't be surprised if the subsidy is extended yet again. The House of Representatives has already passed a bill that would extend the COBRA subsidy to apply to involuntary terminations through June 30, 2010, and a bill currently before the Senate would extend the subsidy to apply to involuntary terminations through the end of 2010.

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