April 26, 2010

Congress Extends COBRA/ARRA Eligibility Cutoff Date for Premium Subsidy to May 31, 2010 and Broadens Coverage Beyond Involuntary Termination to Include Reductions of Hours

Effective April 15, 2010, the 65 percent COBRA premium subsidy program that originally took effect in early 2009 will remain available until May 31, 2010. On April 15, 2010 the President signed into law the Continuing Extension Act which extends by another 61 days, through May 31, 2010, the COBRA subsidy eligibility program, as well as several other federal programs. [Previously, Congress tentatively extended this deadline to June 30, 2010 but this later extension was reversed in the final hours of the Congressional debate. Congress is expected to extend the subsidy program further in tandem with passage of jobs stimulus bills.] Under current law, an employee who experienced an involuntary termination on or after September 1, 2008 and before June 1, 2010, or experienced a reduction in work hours followed by involuntary termination between March 2 and May 31, 2010, is eligible to receive a 65% subsidy toward the cost of health insurance coverage for up to 15 months, provided the employee participates in a group health insurance plan covered by COBRA or in a plan covered by an eligible state mini-COBRA law. In the case of an employee who experienced a reduction in hours followed by an involuntary termination between March 2 and May 31, 2010, during the 60-day period beginning on the date of the involuntary termination, plan administrators must provide an additional general COBRA notification that explains the rules for loss of coverage owing to a reduction in hours. There is no premium reduction for periods of coverage that began prior to February 17, 2009. 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 the qualifying event, which includes most employment terminations. 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 or her dependents consisting of 65 percent of the cost of COBRA premiums for up to nine months. The original nine-month subsidy period was enlarged to 15 months by the Department of Defense Appropriations Act of 2010 (DODA 2010) which took effect on December 19, 2009. Employees and family members who at the time of the original February 17, 2009 COBRA amendment were eligible for nine months of premium subsidy may now receive up to 15 months of premium subsidy. Former employees and dependents whose first nine months of premium subsidy expired before DODA 2010 took effect have the opportunity to receive up to six more months of premium subsidy provided they pay their 35 percent share of any unpaid premiums. 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 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 or her rights under either the COBRA law, the February 2009 ARRA amendments, DODA 2010, the March 2010 Temporary Extension Act, or the Continuing Extension Act. 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.