The 2010 Defense Appropriations Act, which President Obama signed into law on December 19, 2009, extends the period in which individuals may become eligible for subsidized COBRA continuation coverage from December 31, 2009 to February 28, 2010. It also extends the maximum period of subsidized coverage for eligible individuals from nine months to fifteen months.

Background

The American Recovery and Reinvestment Act of 2009 (“ARRA”) introduced a COBRA subsidy for individuals who lost group health coverage due to an employee’s involuntary loss of employment between Sept. 1, 2008, and Dec. 31, 2009. Please see the following Client Alerts for further information regarding the COBRA subsidy: "New COBRA Rules Under Stimulus Bill Require Immediate Attention by Employers, Insurers and Third Party Administrators" and "Department of Labor Issues Model Notices Under New COBRA Subsidy Rules - Immediate Action is Required".

Extension of Subsidy for COBRA Continuation Coverage

The 2010 Defense Appropriations Act makes several important changes to extend the availability of the subsidy on COBRA coverage that was enacted in the ARRA.

  • The Appropriations Act extends the COBRA subsidy eligibility period by two months, from December 31, 2009 to February 28, 2010. The subsidy eligibility period is the period during which an employee must incur an involuntary termination of employment that results in a termination of group health coverage in order for the employee and his or her family members to be eligible for the COBRA subsidy.
  • The Appropriations Act also extends the maximum duration of the COBRA subsidy from nine months to fifteen months.
  • Assistance eligible individuals whose COBRA subsidy expired prior to December 19, 2009 due to exhaustion of the nine-month maximum subsidy period will be entitled to a receive a refund for 65% of the COBRA premiums they have paid since the expiration of the nine-month subsidy period.
  • Assistance eligible individuals who allowed their COBRA coverage to lapse after the subsidy expired will be allowed to restore their COBRA continuation coverage retroactively by paying 35% of the COBRA premiums by February 17, 2010 or, if later, within thirty days after receiving a notice of the extension provided by the employer. Thus, employers have until January 18, 2010 to distribute this notice without further extending beyond February 17, 2010, the period during which assistance eligible individuals may retroactively reinstate their COBRA coverage.

What Employers Need to Know -- and Do -- Now

Employers will need to provide an additional notice of the extension to all individuals who may be eligible to take advantage of the extension of the maximum COBRA subsidy period. Employers will also need to modify their COBRA notices and application forms to extend the subsidy eligibility period to cover involuntary terminations of employment through February 28, 2010.

  • Additional Notice

Employers will need to provide an additional notice to assistance eligible individuals describing the extension of the maximum subsidy period coverage. This notice must be provided no later than:

  • February 17, 2009, to individuals who first became eligible for the subsidy prior to December 19, 2009; or
  • the date by which the assistance eligible individual is required to receive notice of eligibility for COBRA coverage and the subsidy generally, for those individuals who become eligible for the subsidy based upon an involuntary termination occurring on or after December 19, 2009.
  • Special Notice to Individuals who Previously Exhausted the Maximum COBRA Subsidy Period Under ARRA

Employers will also need to provide a special notice to each individual whose subsidy expired before December 19, 2009 due to the exhaustion of the nine-month maximum subsidy period. This notice will need to describe the rights of such individuals to reinstate their COBRA continuation coverage retroactively by paying 35% of the applicable COBRA premiums by February 17, 2010 (or, if later, within thirty days after receiving the notice). The notice will also need to describe how assistance eligible individuals who continued their COBRA coverage after the subsidy ended may obtain refunds or credits for the subsidized portion of their COBRA premium payments. This special notice must be provided by February 17, 2010.