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President Obama Extends Federal COBRA Subsidy

December 2009 by Sara Goldsmith Schwartz

On December 21, 2009, President Obama signed legislation that extends the COBRA subsidy contained in the American Recovery and Reinvestment Act (“ARRA”).  Most significantly:

  • The period of subsidy coverage has been increased from nine months to fifteen months, and
  • The final date by which an involuntary termination will trigger eligibility for the COBRA subsidy has been extended by two months, from December 31, 2009 to February 28, 2010.

The legislation containing these changes is the Fiscal Year 2010 Defense Appropriations Act (the “Act”).

Extension Of COBRA Subsidy

Under the ARRA’s original COBRA subsidy rules, subsidy coverage extended only to those individuals whose qualifying event (i.e., involuntary termination) and commencement of COBRA coverage occurred between September 1, 2008 and December 31, 2009.  Under the Act, eligibility for the subsidy is now determined solely by the timing of an individual’s qualifying event, irrespective of when the individual’s COBRA coverage begins.

The Act also extends the final date by which an involuntary termination may trigger the COBRA subsidy from December 31, 2009, to February 28, 2010.  Thus, an individual involuntarily terminated from employment on February 28, 2010, may be eligible for the COBRA subsidy, even if his or her COBRA coverage would not commence until March 1, 2010.

Further, under the ARRA’s original COBRA subsidy rules, the COBRA subsidy was available to assistance eligible individuals (AEIs) for a maximum period of nine (9) months.  Under the Act, AEIs – including those currently receiving the COBRA subsidy, and those who have already exhausted nine months of COBRA subsidy – may now receive the COBRA subsidy for up to fifteen (15) months.

An AEI who exhausted the subsidy and then began paying the full COBRA premium will now be eligible for six additional months of the COBRA subsidy, as well as a refund or credit for the amount of the premium overpayment.

Similarly, an AEI who exhausted the subsidy and then let COBRA coverage lapse will be allowed to pay the reduced COBRA premiums retroactively by the later of February 19, 2010, or thirty (30) days after receiving notice of the Act’s COBRA subsidy extension, in order to reinstate the subsidy for an additional six (6) months.  (The employer reimbursement method established by the ARRA will apply to all premium refunds or credits necessitated by the Act.)

With the exception of the changes described here, the original terms and conditions of the COBRA subsidy created by the ARRA will continue to apply. 

Notice Requirements

The Act imposes certain notice requirements on plan administrators, as follows:

  1. Plan administrators must provide a notice explaining the Act’s extension of COBRA rights to individuals who were AEIs on or after October 31, 2009.  This notice must be provided within sixty (60) days of the Act’s enactment, or by February 19, 2010.
  2. Plan administrators must provide notice of eligibility for the COBRA subsidy to individuals terminated from employment between October 31, 2009, and February 28, 2010.  This notice should be provided to all terminated employees (whether the termination was voluntary or involuntary) within thirty days of the individual’s termination from employment.
  3. Plan administrators must notify AEIs who exhausted their nine (9)-month COBRA subsidy that they are eligible for either (a) a refund or credit for premium overpayment, or (b) reinstatement of the COBRA subsidy at the reduced rate.  This notice must be provided to affected individuals within sixty (60) days of when the first overpayment was made or coverage lapsed, as applicable.  (As mentioned, an individual who chooses to reinstate COBRA continuation coverage will have thirty (30) days after receipt of this notice to make the retroactive premium payments.)

Unfortunately, unlike the ARRA, the Act does not direct any federal government agency to draft model COBRA notices, and guidance on the Act’s new COBRA provision has not been released.  Thus, it may be necessary for employers to draft model notices containing appropriate language consistent with the Act’s requirements.  Of course, Schwartz Hannum can provide model notices tailored to your organization.

Recommendations For Employers

Employers are encouraged to do the following to ensure compliance with the Act’s requirements:

  • Review employment records to determine which individuals, if any, must be sent the notices outlined above;
  • Update COBRA notices and eligibility forms, with the assistance of counsel, to comply with the Act’s new requirements, and distribute these notices and forms appropriately;
  • Confer with group health-insurance carriers and counsel to ensure that all AEIs are being offered continuation coverage in accordance with federal COBRA requirements; and
  • Establish procedures for maintaining accurate records of the COBRA premium assistance payments made to AEIs.

Please contact us if you would like help preparing new COBRA notices, or if you have questions or need assistance in achieving compliance with the new COBRA subsidy requirements.