COBRA Subsidy ExtendedJanuary 07, 2010
On December 21, 2009, President Obama signed the Department of Defense Appropriations Act (the "Appropriations Act") into law. The Appropriations Act extends the federal subsidies provided under the American Recovery and Reinvestment Act ("Reinvestment Act") to help certain individuals who lose their jobs afford to continue employer-sponsored group health plan coverage under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). For a more detailed description of the Reinvestment Act's COBRA subsidy rules, please see our Tax & Employee Benefits Alert dated February 23, 2009.
What Are the General Changes Under the Appropriations Act?
The Appropriations Act extends the COBRA subsidy eligibility to apply to an individual who involuntarily terminates employment before March 1, 2010 and then loses group health plan coverage. For example, an individual who is involuntarily terminated on February 15, 2010 will still be eligible for the COBRA subsidy even if he or she does not lose employer-provided health plan coverage until after February 28, 2010. (Previously, to be eligible for the COBRA subsidy under the Reinvestment Act, an individual generally must have involuntarily terminated employment and commenced the 18-month COBRA period prior to January 1, 2010.) The Appropriations Act's extension also applies to an eligible individual's covered family members.
Similarly, the Appropriations Act generally extends the 65% premium COBRA subsidy from a maximum of nine months to a maximum of fifteen months.
Under the Appropriations Act, an eligible individual who allowed his or her COBRA coverage to expire prior to December 19, 2009 after his or her COBRA subsidy was exhausted may establish retroactive coverage for previous months. To do so, the individual must pay 35% of the premiums by the later of February 17, 2010 or 30 days after the notice of the extension is provided by the plan administrator, as discussed below. Additionally, an eligible individual whose COBRA subsidy was exhausted prior to December 19, 2009 generally is entitled to a refund or a credit of 65% of the COBRA premiums he or she paid after the subsidy period was exhausted.
What Are the New Notification Requirements Under the Appropriations Act?
The Appropriations Act requires an employer to provide additional information about the COBRA subsidy extension by February 17, 2010 to an individual who (1) is an assistance eligible individual under the Reinvestment Act on or after October 31, 2009, or (2) experienced a termination of employment after October 31, 2009 that is a COBRA qualifying event. Furthermore, in the case of an individual who experiences a COBRA qualifying event after December 19, 2009, the individual must receive notification of the COBRA subsidy extension in a manner that is consistent with COBRA's normal election notice timing requirements.
In addition, an eligible individual who exhausted his or her COBRA subsidy under the Reinvestment Act and was dropped from coverage for failure to pay a COBRA premium must be notified about the right to make retroactive subsidized premium payments and continue coverage. Further, an eligible individual who exhausted his or her COBRA subsidy but continued COBRA coverage by paying the premiums must be notified about his or her right to reimbursement of, or a credit for, 65% of those COBRA premium payments. Each notice must be provided by February 17, 2010.
The Department of Labor will issue model notices shortly to address the Appropriation Act's changes. It is expected that these notices will be available on the United States Department of Labor website.
Will there be any additional extensions?
Possibly. An extension to June 30, 2010 has been proposed in the Jobs for Main Street Act, which currently is being debated in Congress.
What Steps Should an Employer Take?
The Appropriations Act is likely to increase an employer's administrative burdens. Employers should act now to:
- Identify all individuals (and their last known addresses) who were assistance eligible individuals on or after October 31, 2009 or experienced a termination of employment that was a COBRA qualifying event after October 31, 2009. No later than February 17, 2010, these individuals must receive the information regarding the COBRA subsidy extension that will be provided in the Department of Labor's model notice.
- Identify all individuals (and their last known addresses) whose COBRA subsidy eligibility was exhausted and are now eligible to retroactively elect coverage and resume the COBRA subsidy. These individuals should receive a notice describing these rights as soon as possible after the model notice is issued.
- Identify all individuals whose COBRA subsidy eligibility was exhausted but continued to pay their COBRA premiums. These individuals may be eligible for a reimbursement of, or credit for, 65% of these payments, and must receive a notice describing these rights as soon as possible after the model notice is issued.
If you have any questions or need assistance, please contact Todd Cleary, Sven Skillrud, or any other Godfrey & Kahn Employee Benefits Team Member.