COBRA Premium Subsidy Extended

On December 21, 2009, President Obama signed into law the Department of Defense Appropriations Act (the Act), which extended the subsidy for COBRA premiums due to expire on December 31, 2009. The Act extends the COBRA premium reduction eligibility period until February 28, 2010 and increases the maximum period for receiving the subsidy by an additional six months (from nine to 15 months).

Original Passage of COBRA Premium Subsidy

In February 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). To assist the increasing number of unemployed, the ARRA included changes to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) that required employers to advance, on behalf of the government, a COBRA premium subsidy to terminated and laid-off employees which employers could later recoup through tax credits. Employers also were required to provide additional notice of the subsidy to all individuals who became eligible to elect COBRA continuation coverage.

Under the ARRA, Congress created a subsidy for “assistance-eligible individuals” (AEIs) through which the federal government pays up to sixty-five percent of the COBRA continuation premium that would otherwise have been payable by the beneficiary. An AEI is any qualified beneficiary who elects COBRA coverage and: (1) loses group health coverage due to an involuntary termination for reasons other than gross misconduct; and (2) has a qualifying event between September 1, 2008 and December 31, 2009, is otherwise eligible for COBRA coverage, and elects that coverage. Beneficiaries originally were entitled to receive the subsidy up to a maximum of nine months.

Extension of COBRA Premium Subsidy

Under the newly extended COBRA premium subsidies, the eligibility period has been extended from December 31, 2009 to February 28, 2010. Thus, an AEI under the amended program includes those who experienced qualifying events which occurred between September 1, 2008 and February 28, 2010. Additionally, the maximum period that an AEI can receive the subsidy has been increased from nine to 15 months. As with the original program, the premium reduction for an individual ends upon eligibility for other group coverage or Medicare. Individuals paying reduced COBRA premiums must inform their employer or plan administrator of such coverage.

For any AEI for whom the premium subsidy now applies due to the extension, there is a transition period consisting of any period of coverage that began before the extension’s enactment date. In the case of an AEI who, during this transition period, paid the full premium amount for coverage without regard to the subsidy amount, ARRA rules require that the AEI be reimbursed for the excess premiums.

Notice Requirements Under Extended Plan

The December Act mandates that plans notify certain current and former participants and beneficiaries about the premium reduction. On January 13, 2010, the Department of Labor released a set of revised model notices to help plan administrators and individuals comply with these requirements. The model notices are available at the following Department of Labor web site: http://www.dol.gov/ebsa/COBRAmodelnotice.html.