WORKPLACE LAW -
COBRA Subsidy Extension

Question:

I heard that the COBRA premium subsidy has been extended. What does this mean for employers?

Answer:

President Obama recently signed legislation that expands and extends the COBRA subsidy created by the American Recovery and Reinvestment Act of 2009 (ARRA). Under the ARRA, individuals who suffered an involuntary termination of employment between September 1, 2009 and December 31, 2009 were generally eligible to elect COBRA coverage and receive a subsidy of 65% of their COBRA premiums for up to 9-months. The subsidy is paid for by the employer, who then receives reimbursement by the federal government via a payroll tax credit.

The original ARRA subsidy was intended to be a short-term benefit, but in light of ongoing economic concerns, President Obama called for an extension of the subsidy. The COBRA subsidy extension legislation was signed into law on December 19, 2009.

The original COBRA subsidy program, which was scheduled to expire on December 31, 2009, has now been extended so eligible individuals may receive the subsidy through February 28, 2010. The new legislation extends the subsidy to individuals who are involuntarily terminated between January 1, 2010, and February 28, 2010. The legislation also allows certain individuals whose subsidy periods have already expired, and who failed to pay their full unsubsidized premiums, to pay them retroactively.

The COBRA subsidy is available to "assistance-eligible individuals" (AEIs). An AEI is any COBRA-qualified beneficiary who elects COBRA coverage and: (1) had a loss of group health coverage as a result of an involuntary termination of employment (other than for gross misconduct); and (2) had a “qualifying event” between September 1, 2008, and February 28, 2010, and was otherwise eligible for COBRA coverage during that period. A “qualifying event” is something (typically the involuntary termination of one’s employment) that causes the individual’s healthcare coverage to cease.

The following are the key provisions of the new COBRA subsidy extension:

  • The maximum amount of time an eligible individual can receive a subsidy has increased from 9 to 15 months.
  • The subsidy eligibility period is expanded, and now runs from September 1, 2008 to February 28, 2010. The new rule does not require that COBRA coverage begin by February 28, 2010, but instead provides that someone is an AEI as long as the COBRA qualifying event occurs by February 28, 2010, and the individual is eligible for COBRA coverage as a result of that event.
  • Individuals who had reached the end of the reduced premium period before the legislation extended it to 15 months will be given extra time to pay the reduced premium. To continue their coverage they must pay the 35 percent of premium costs by February 17, 2010, or, if later, 30 days after notice of the extension is provided by their plan administrator.
  • If, during this transition period, an AEI paid the full premium amount for coverage and did not receive a subsidy, the employer must reimburse the AEI for the subsidy amount or provide a credit for future coverage.

In light of these changes, employers will need to revise their COBRA notices to meet the requirements of the new subsidy extension legislation. COBRA subsidy notices should be revised to state that employees may receive the subsidy for up to 15 months after their qualifying event, and employees who are involuntarily terminated from employment on or before February 28, 2010 may qualify for the subsidy.

Additionally, employers or plan administrators must provide notice about the COBRA subsidy changes to individuals who have already been provided a COBRA election notice. AEIs must be provided this notice by February 17, 2010. Individuals who experience a termination of employment on or after October 31, 2009 and lose health coverage must also be provided this notice within the normal timeframes for providing continuation coverage notices.

Employers must also provide notice to individuals whose subsidy periods expired and who failed to pay their full unsubsidized premiums. The notice must be provided by February 17, 2010, and it must include information on the ability to make retroactive premium payments in order to maintain COBRA coverage.
For more information, visit the Department of Labor’s website at
http://www.dol.gov/ebsa/newsroom/fscobrapremiumreduction.html.
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