On December 19, 2009, President Obama signed the Department of Defense Appropriations Act for Fiscal Year 2010, which included an extension of the COBRA premium subsidy that was part of the American Recovery and Reinvestment Act (“ARRA”). As you may recall, ARRA was signed into law on February 17, 2009, and included a temporary subsidy for COBRA coverage to eligible individuals.

Under ARRA, assistance eligible individuals (“AEIs”) are individuals who (1) are involuntarily terminated from employment between September 1, 2008, and December 31, 2009 (for reasons other than gross misconduct); (2) elect COBRA coverage; and (3) meet a certain income threshold. The subsidy for eligible individuals equals 65% of the normal COBRA premium for 9 months.

As set forth in the extension, which is effective immediately, the premium subsidy will now apply to individuals who are involuntarily terminated through February 28, 2010. The period of subsidy has been extended from 9 months to 15 months.

Eligibility Clarifications The eligibility criteria under ARRA required that an individual experience an involuntary termination and become eligible for COBRA between September 1, 2008, and December 31, 2009. This excluded from the subsidy an individual who was terminated before December 31, 2009, but was not eligible for COBRA until January 1, 2010. The extension fixes this “glitch” by allowing individuals who were involuntary terminated before the end of the assistance period, but who were not yet eligible for COBRA, to take advantage of the subsidy regardless of when their eligibility for COBRA begins. An AEI must still become eligible for COBRA as a result of the involuntary termination.

Additionally, the extension provides that AEIs who dropped COBRA because their subsidy pricing ended must be given the opportunity to pay back premiums in the subsidized amount and to have their coverage reinstated. AEIs who paid unsubsidized premiums after the end of their subsidy period will receive a reimbursement (in the form of a refund or a credit toward future premiums).

Notices

The extension will impose additional notice requirements on employers for (1) individuals who were AEIs on or after October 31, 2009, (2) individuals who are terminated on or after October 31, 2009, and (3) individuals who are due a right of reimbursement or reinstatement. The Department of Labor has indicated that model notices are forthcoming.

Next Steps

Employers should work to identify individuals who may be eligible for reimbursement or reinstatement, and should continue to coordinate with their insurance companies, plan administrators and payroll departments.