Congress Approves COBRA Subsidy Expansion

Employee Benefits Alert

On Saturday, December 19, President Obama signed the Department of Defense Appropriations Act for Fiscal Year 2010 (H.R. 3326) (the “Act”), which contains an extension of the COBRA subsidy that is scheduled to expire at the end of 2009. Under the American Recovery and Reinvestment Act of 2009 (ARRA), individuals who suffered an involuntary termination of employment that caused them to lose coverage under a group health plan on or before December 31, 2009, were generally eligible for up to a 9-month subsidy of 65% of their COBRA premiums. The subsidy is “fronted” by the employer (or insurer of an insured plan that is subject to state continuation coverage requirements instead of COBRA), and reimbursed by the federal government via a payroll tax credit. The Act expands the COBRA subsidy in several important ways. Note, however, that the basic rules, such as, the actual amount of the subsidy (i.e., 65%), the rules regarding eligibility for the subsidy (i.e., involuntary termination of employment or certain other involuntary losses of coverage) and the payment mechanism, remain unchanged.

Under the Act, the deadline for individuals to become eligible for the subsidy is extended to involuntary terminations of employment occurring on or before February 28, 2010. In addition, while ARRA required an individual to be both involuntarily terminated from employment and become eligible for COBRA by the December 31, 2009, deadline, the Act changes that requirement. Under the Act, any individual who is involuntarily terminated from employment by February 28, 2010, is eligible for the subsidy, regardless of whether the individual would become eligible for COBRA by that date. For example, under ARRA, if an individual, terminated from employment on December 31, 2009, was not eligible for COBRA until January 1, 2010, he would not have been eligible for the subsidy. Under the Act, an individual who is involuntarily terminated from employment on February 28 and becomes eligible for COBRA on March 1, 2010 will be eligible for the subsidy.

The maximum length of the subsidy is extended from 9 months to 15 months. Special provisions apply with respect to an individual’s “transition period” (i.e., any period of coverage before December 21, 2009, with respect to which the 9-month subsidy would have otherwise expired, but for the extension to 15 months). For example, individuals who received 9 months of subsidy and then stopped paying premiums would be allowed to retroactively pay those premiums (applying the subsidy), and be deemed to have maintained COBRA coverage during that period. In this regard, plan administrators are required to notify employees, within 60 days of losing coverage, of their ability to make retroactive premium payments to restore coverage. Individuals who began receiving the subsidy on March 1, 2009, would have exhausted their 9-months by November 30, so the new notice regarding the availability of retroactive coverage would likely be due by January 29, 2010 (e.g., 60 days after loss of coverage on November 30, 2009). In addition, individuals who paid their full premiums for any month of coverage (i.e., because their 9-month subsidy period had expired), but who would have been eligible for the subsidy as a result of the new extension, will be allowed to recapture their “overpayments” via either a refund or credit against future premiums. The notice requirements also apply to these individuals. Retroactive payments will restore coverage only if the individual (a) did not allow his or her COBRA coverage to lapse before the end of the 9 months of subsidy that were initially available and (b) pays the retroactive (subsidized) COBRA premium(s) by the later of (1) 60 days after date of enactment (i.e., February 17, 2010) or (2) 30 days after the plan administrator provides the required notice.

The Act imposes additional general notice requirements. By February 17, 2010, (or later, in accordance with the general timeline for COBRA notices), plan administrators must provide a notice describing the Act’s COBRA subsidy changes to any individual who was eligible for the 9-month subsidy -- or who experienced a qualifying event that consisted of a termination of employment -- at any time on or after October 31, 2009. The Department of Labor has not yet announced whether it will issue additional model notices related to the extension of the subsidy.

The Act takes effect immediately (as if it were included in ARRA). If a group health plan provides coverage to individuals through the end of the month in which a COBRA qualifying event occurs, no individuals who were involuntarily terminated from employment during the month of December, 2009, would have been eligible for the subsidy under ARRA (as described above). For those plans, the plan administrator may already have reverted to its pre-ARRA COBRA notices for all qualifying events occurring on or after December 1, 2009. If any such notices have already been provided, the plan administrator should probably follow-up with an ARRA-compliant notice (presumably by the deadline that would otherwise have applied).

As a final note, the Jobs for Main Street Act (the “jobs bill”) contains additional provisions impacting the COBRA subsidy. The House approved its version of the jobs bill on December 16 and the Senate is likely to consider the legislation sometime early next year. The jobs bill clarifies a number of issues related to the subsidy and extends eligibility to individuals who are involuntarily terminated from employment anytime on or before June 30, 2010.

We will continue to monitor the jobs bill and provide updates as applicable. In the meantime, plan administrators should take whatever steps necessary to continue providing the COBRA subsidy into 2010 and to comply with the additional notice requirements.

For more information about the topics covered in this alert, please contact:

Susan Relland

Garrett Fenton,, 202-626-5562

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