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Legal Updates

President Obama Extends Federal COBRA Subsidy Again

On March 2, 2010, President Obama signed the Temporary Extension Act (“TEA”).  TEA extends the eligibility period for the COBRA subsidy contained in the American Recovery and Reinvestment Act (“ARRA”) and broadens ARRA’s definition of “assistance eligible individual,” or AEI, as discussed below.

Extension Of COBRA Subsidy

TEA extends the eligibility period for the COBRA subsidy so that employees who are involuntarily terminated between March 1, 2010 and March 31, 2010 will be eligible for the subsidy.  Prior to TEA’s enactment, employees involuntarily terminated only through February 28, 2010 were eligible.

In making this change, TEA clarifies that an employee involuntarily terminated on March 31, 2010, will be eligible for the COBRA subsidy even if his or her COBRA coverage would not commence until April 1, 2010.  In this regard, the termination date, not the subsidy commencement date, governs.

Under ARRA’s subsidy provision, as long as an AEI pays 35% of the premium for COBRA continuation coverage, the applicable health plan must treat the individual as having paid the full premium.  Employers must “front” the cost of the 65% subsidy but may obtain reimbursement from the federal government by taking a credit on their payroll tax returns.  The COBRA subsidy is available to AEIs for a maximum period of 15 months.

(For details of the logistical requirements of the COBRA subsidy, as well as the first extension, see the Firm’s December 2009 e-alert entitled President Obama Extends Federal COBRA Subsidy.)

Broadened Definition Of Assistance Eligible Individuals

TEA also broadens the definition of AEI to include certain employees who previously lost health insurance coverage due to a reduction in working hours.  Specifically, if an employee (a) was subject to a reduction in hours between September 1, 2008 and March 31, 2010, causing the loss of health insurance coverage; (b) did not elect COBRA continuation coverage at that time (or made an election but then discontinued COBRA continuation coverage); and (c) subsequently becomes involuntarily terminated between March 2, 2010 and March 31, 2010, the involuntary termination will be treated as a qualifying event for purposes of COBRA continuation coverage.

In this scenario, however, the date when the reduction in hours took place will be deemed the date of the qualifying event for purposes of commencing the COBRA continuation coverage.  For example, if an AEI’s hours were reduced on January 1, 2010, resulting in a loss of health coverage, and the AEI is involuntarily terminated on March 15, 2010, the AEI would be eligible for COBRA continuation coverage following the involuntary termination, but the period of COBRA continuation coverage would be deemed to have started on January 1, 2010.

Recommendations For Employers

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

  • Send required notices to employees whose employment is terminated through March 31, 2010, including employees who previously lost health insurance coverage due to a reduction in hours;
  • Update COBRA forms for compliance with all recent statutory amendments;
  • 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
  • Follow procedures for maintaining accurate records of the COBRA premium assistance payments.

As the purpose of TEA is to give Congress more time to consider extending certain programs, including the COBRA subsidy, through 2010, further changes in this area of the law are expected.  We will keep you apprised of significant developments as they occur.

Meanwhile, please contact us if you have any questions about the potential impact of TEA on your business.