On March 2, President Obama signed into law the Temporary Extension Act of 2010 (the “Act”), a stop-gap measure that extends the federal COBRA subsidy through March, and continues other federal subsidy programs. The bill, H.R. 4691, can be found here.

Most notably, the Act extends the 65%, 15-month subsidy to COBRA coverage for workers involuntarily terminated between March 1 and March 31, 2010. The Act applies retroactively to February 28, the date the prior COBRA subsidy expired, thereby eliminating any lapse in coverage. An explanation of the genesis of the subsidy and an earlier extension of its coverage is contained in prior Franczek Radelet ebulletins found here and here.

In addition to extending the eligibility period for the COBRA subsidy for one month, the Act redefines who is eligible for the subsidy. Before the Act, eligibility extended to individuals whose coverage under a group health plan ended because of involuntary termination between September 1, 2008 and February 28, 2010. Now, any individual who loses group health coverage due to involuntary termination or due to a reduction of hours followed by an involuntary termination of employment between September 1, 2008 and March 31, 2010, is eligible for the subsidy.

Individuals who prior to the passage of the Act were offered COBRA continuation of coverage on the basis of a reduction in hours but did not elect it, can still be eligible for the subsidy if they were involuntarily terminated on or after March 2, 2010, and before March 31, 2010. The period of COBRA continuation coverage for such individuals will be determined as though the reduction in hours was the qualifying event. The Act provides that such individuals will not be required to pay for COBRA continuation coverage for the period between their reduction in hours of employment and their involuntary termination.

Thus, while an individual still must suffer an involuntary termination to be eligible for the COBRA subsidy, the Act makes clear that failure to elect for COBRA benefits after a past reduction in hours, which could have occurred as far back as 2008, will not disqualify an individual from receiving the COBRA subsidy if that person is involuntarily terminated before March 31, 2010. However, in order to be eligible for the subsidy following an involuntary termination, the individual must timely elect COBRA continuation coverage under the regular procedures, or under special election procedures that apply under transition rules.

The Act also contains a new notification requirement. Administrators of health plans, or other entities, are now required to provide notification within 60 days of termination of employment to any individual who was terminated after suffering a reduction in hours, as described above, notifying the individual of the new election opportunity.

Further, the Act changes the COBRA subsidy cutoff date. Before the Act, the subsidy terminated on the earliest date of: (1) the first date a recipient becomes eligible for other group health plan coverage or Medicare coverage; (2) 15 months after the first day of the first month in which the subsidy applies; or (3) the date the individual ceases to be eligible for COBRA continuation coverage. The Act revised the second event, which now cuts off eligibility for the subsidy 15 months after the first day on which the subsidy applies to the individual in question.

Also, the Act creates additional enforcement mechanisms. Plan sponsors or health insurance issuers who have been the subject of a government agency determination that they wrongfully denied COBRA premium assistance to an individual are now subject to civil actions to enforce the determination. Plan sponsors and insurance issuers are also now subject to a $110 per day penalty for failing comply with a government determination, starting 10 days after receipt of the determination.

Finally, employers can now assist in making employees eligible for the subsidy by making a determination that the individual was involuntarily terminated. Under the Act, a qualifying event will be deemed an involuntary termination of the covered employee’s employment if (1) based on relevant statutory and administrative guidance, an employer determines that the qualifying event was an involuntary termination; and (2) the employer maintains supporting documentation of the determination, including an attestation that the employee was subject to an involuntary termination.

In the coming days, the Senate is expected to take up legislation that would extend the COBRA subsidy to December 31, 2010. Franczek Radelet will provide you with updates as they develop.