On December 19, 2009, the provisions of the American Recovery and Reinvestment Act of 2009 (ARRA) that established a 65 percent government subsidy toward payment of premiums for continuation coverage provided by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") were amended by the Department of Defense Appropriations Act for Fiscal Year 2010 (the "Act") to extend both the eligibility period and the length of the premium subsidy. The Act also implemented additional reimbursement, retroactive election and notice requirements on group health plans subject to COBRA.

Prior to the Act, the federal government paid 65 percent of the cost of a qualified beneficiary's COBRA premium, where the qualified beneficiary (i) was eligible for COBRA continuation coverage during the period from September 1, 2008 through December 31, 2009, due to an involuntary termination from employment, and (ii) elected COBRA continuation coverage (qualified beneficiaries who meet these requirements are called "Assistance Eligible Individuals," or "AEIs"). The COBRA premium subsidy provided by ARRA could be applied to an AEI's COBRA premium payments for up to nine months. Click here to read our February 2009 Client Alert detailing the enactment of the COBRA premium subsidy.

In response to the current economic conditions in the US, the Act extends the period during which the involuntary termination giving rise to the qualified beneficiary's COBRA rights from December 31, 2009 to February 28, 2010 (the "Extended Period"). The Act also extends the maximum length that an AEI may receive the COBRA premium subsidy from nine months to fifteen months.

The Act also includes transition provisions to address the affect of the two extensions on AEIs whose eligibility for the COBRA premium subsidy had expired before the Act's passage. Under the Act, AEIs who had received a full nine months of the COBRA premium subsidy before December 19, 2009, and had subsequently dropped COBRA coverage, can now elect to receive COBRA coverage, retroactive to the day the AEI dropped the coverage, by making a payment equal to 35 percent of the cost of their COBRA premium for those subsequent months. AEIs electing the retroactive COBRA coverage provided by the Act may receive the COBRA premium subsidy up to an additional six months, and must submit the retroactive payment by the later of (i) February 17, 2010 or (ii) thirty days after receiving a notice from the plan administrator that describes the Act's changes. The Act also allows AEIs who had received a full nine months of the COBRA premium subsidy before December 19, 2009, and had subsequently elected to continue COBRA coverage by paying the entire cost of the COBRA premium, to receive either a refund of the 65 percent overpayment or a credit of the 65 percent overpayment toward the COBRA premium due in future months.

Group health plans will also be required to meet new notice requirements promulgated by the Act. Such plans must provide notice of the extensions to two groups of individuals. First, the Act requires group health plans to notify all individuals who were either AEIs or who experienced a qualifying event relating to a termination of employment on or after October 31, 2009; the plans must notify such individuals by February 17, 2010, or within the notification period required by COBRA where the termination of employment occurs after December 19, 2009. Second, the Act requires group health plans to notify all AEIs who are eligible to take advantage of the transition provisions described above within the first 60 days of the AEI's transition period (e.g., for an AEI who received the COBRA premium subsidy beginning on March 1, 2009 and lost the subsidy after receiving the subsidy the next nine months—until November 30, 2009—the group health plan would need to notify the AEI of the extension by January 28, 2010).

Notably, the Act also amended the requirements for a qualified beneficiary to become an Assistance Eligible Individual (and thus to be eligible to receive the COBRA premium subsidy) by removing the condition that the qualified beneficiary become eligible for COBRA coverage during the Extended Period. As a result, a qualified beneficiary who becomes eligible for COBRA coverage at any time during or after the Extended Period may still qualify to receive the COBRA premium subsidy, so long as his or her eligibility for that COBRA coverage results from an involuntary termination that occurs during the Extended Period. For example, if Employer ABC provides Joe with six months of ABC-paid continued medical coverage after his involuntary termination on January 31, 2010 (and Joe was covered by ABC's medical plan on the date of his termination), although Joe would be eligible to elect to receive the COBRA premium subsidy, Joe would not begin to receive it until August 1, 2010, since he would not experience a loss of his medical coverage until July 31, 2010.