January 19, 2010

New COBRA Amendments Extend ARRA's Premium Subsidies and Eligibility Cutoff

Effective immediately, the 65 percent COBRA premium subsidy, that took effect on February 17, 2009 and was scheduled to phase out by no later than September 30, 2010, has been extended by six months. Also extended is the cutoff date for involuntary terminations that are eligible for premium subsidies, which is now February 28, 2010. When an employee separates from employment, generally employers that are subject to COBRA must offer the terminated employee, and any family members who are covered by the group health plan, the opportunity to purchase insurance continuation coverage at the employee’s expense, generally for up to 18 months after employment separation. The American Recovery and Reinvestment Act of 2009 (ARRA) eased this financial burden by providing a financial subsidy to any involuntarily terminated employee and his dependents consisting of 65 percent of the cost of COBRA premiums for up to nine months. On December 19, 2009 the President signed into law the Department of Defense Appropriations Act of 2010 (DODA 2010), which amends ARRA and COBRA in two major respects:
  1. Employees who are involuntarily terminated on or before February 28, 2010 are eligible to apply for the premium subsidy. This represents a two-month extension of the eligibility cutoff date for the premium subsidy.
  2. The premium subsidy is now available for up to 15 months for anyone who was involuntarily terminated at any time from February 17, 2009 to February 28, 2010. This represents a six-month extension of the premium subsidy.
Employees and family members who at the time of the original February 2009 COBRA amendment were eligible for nine months of premium subsidy may now receive up to six more months of premium subsidy. Former employees and dependents whose first nine months of premium subsidy expired before DODA 2010 took effect now have the opportunity to receive up to six more months of premium subsidy provided they pay their 35 percent share of any unpaid premiums due by February 17, 2010, or within 30 days after receiving notice of the extension from the employer, whichever is later. Former employees who continued to pay for their COBRA continuation coverage after their first nine months of premium subsidy ended and before enactment of DODA 2010 may receive a credit or a refund equal to 35 percent of the premium costs they paid, subject to the new overall 15-month limit. DODA 2010 requires plans by no later than February 17, 2010 to notify certain current and former group health insurance plan participants and beneficiaries about the new rules on premium subsidy. To assist employers and employees with the new requirements, the Labor Department posted updated model notices at http://www.dol.gov/ebsa/COBRAmodelnotice.html. A notice must be provided to any employee who was terminated on or after September 1, 2008 and has not already received notice of his rights under either the COBRA law or the February 2009 ARRA amendments. A separate notice must be sent to any former employee who on or after October 31, 2009 either was eligible for a premium subsidy, or terminated employment. For additional information, please contact Patrick W. McGovern. This alert is provided for educational and informational purposes only and is not intended and should not be construed as legal advice.  It is recommended that readers not rely on this publication but that professional advice be sought for individual matters.