Congress Extends COBRA Premium Subsidy and Requires New Notices
 
The COBRA subsidy program first introduced by the American Recovery and Reinvestment Act of 2009 (ARRA) has been extended as a part of the Department of Defense Appropriations Act, 2010 (the “2010 Act”).  The extension allows individuals who are involuntarily terminated on or prior to February 28, 2010 to pay only 35% of the premium for their COBRA coverage, with employers required to pay the rest, and extends the maximum duration of subsidized coverage from 9 to 15 months.
 
Extension and Clarification of Time of Eligibility
 
The 2010 Act makes two key changes to the persons entitled to the subsidy.  First, it changes the definition of an Assistance Eligible Individual (“AEI”) to include any qualified beneficiary who becomes eligible for COBRA continuation coverage due to an involuntary termination of a covered employee's employment between September 1, 2008 and February 28, 2010, and timely elects COBRA coverage.  Second, the 2010 Act revises the AEI definition to clarify that individuals who continue coverage under a plan until the end of the month in which they are involuntarily terminated do qualify for the subsidy, even if those individuals are terminated in February 2010 and are not eligible for COBRA coverage until March 1, 2010.
 
Lost/Dropped Coverage and “Transition Period”
 
The 2010 Act also provides extra protections to persons who lost or dropped COBRA coverage due to exhaustion of the premium subsidy, and addresses other “transition” issues.  An individual who lost or dropped COBRA coverage due to exhaustion of the subsidy can pay subsidized premiums for retroactive coverage during the transition period.  To do this, the individual must make these payments by the later of (a) February 17, 2010, (b) 30 days after the Plan Administrator provides notice of the COBRA subsidy extension, or (c) the end of the applicable grace period (usually 30 days).  Individuals in a "transition period" who continued their COBRA coverage by paying the full premium are entitled to a refund or a credit against future payments.  A person is in a "transition period" if:  (1) the maximum number of months of subsidized coverage under ARRA (generally nine) was exhausted; (2) the individual would still have subsidized coverage under the extension (i.e., is in months 10 through 15); and (3) the individual otherwise remains eligible for the subsidy.
 
New Notice Requirements
 
Employers must comply with certain new notice requirements immediately.  An updated General Notice must be provided to all qualified beneficiaries who experience any qualifying event from September 1, 2008 through February 28, 2010, and who have not already received a COBRA election notice.  This notice should contain information about the ARRA COBRA subsidy, the subsidy extension in the 2010 Act, and general COBRA election information.  For qualifying events occurring after December 19, 2009, this notice must be provided based on the normal time frame for providing COBRA election notices.
 
If an individual experiences a qualifying event prior to December 19, 2009 and either received no notice or received a General Notice that was not updated to include 2010 Act changes, then:
  • For individuals who were AEIs as of October 31, 2009, or who experienced a termination of employment (voluntary or involuntary) on or after October 31, 2009 and lost health coverage, a Premium Assistance Extension Notice must be provided by February 17, 2010.
  • For individuals who are in a transition period (the period beginning immediately after exhaustion of the maximum number of months of subsidized COBRA coverage, and where the subsidy would continue to apply due to the extension to 15 months) the same Premium Assistance Extension Notice must be provided within 60 days of the first day of the individual's transition period.
  • For individuals who were incorrectly deemed ineligible for the subsidy because they were terminated in December 2009, the updated General Notice should be provided, and the individual should be given the full 60 days from the date the updated notice is provided to make a COBRA election.
However, persons who experienced a qualifying event other than a termination of employment between October 31, 2009 and December 19, 2009, do not need to be provided with any additional notice if those individuals received a General Notice based on the original provisions of ARRA. 
 
Action Required:  Employers and plan administrators must take immediate steps to comply with the premium subsidy extension and new notice requirements, including:
  1. Review and update all relevant notices, and existing plan notices, forms and disclosures, as needed.  DOL has posted a model updated General Notice, updated Alternative Notice, and Premium Assistance Extension Notice on its Web site at http://www.dol.gov/ebsa/COBRAmodelnotice.html. 
  2. Provide updated notices to the appropriate individuals. 
  3. Coordinate with human resources and payroll departments and any external COBRA administrators and service providers to identify individuals who are affected by the subsidy extension, including dropped and “transition” individuals.
  4. Continue to maintain supporting documentation regarding payments, involuntary terminations, and eligibility for all AEIs and their subsidized coverage. 

For more information about the COBRA premium assistance provisions in ARRA and compliance with those provisions, please see our March 13, 2009 PRK E-Update.