An expansion of the COBRA premium subsidy originally adopted as part of the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law by the President on December 19, 2009 as part of H.R. 3326 – Department of Defense Appropriations Act, 2010. The text of the provision can be found as Section 1010 starting on page 64 of the document linked here.  

This advisory summarizes the COBRA provisions and highlights actions that are needed now in order to comply with the new law. In addition, we will be sending an invitation to participate in a conference call in early January in which we will explain the new rules in detail, and also provide an opportunity for questions and answers.  

Summary of COBRA Credit Expansion:

The new provision:  

a. Changes the end date of eligibility for the ARRA subsidy from December 31, 2009 to February 28, 2010.  

(b) Expands the ARRA premium subsidy period to 15 months (increased from the prior 9 months).  

(c) Allows a period for the retroactive payment of premiums for assistance eligible individuals (“AEIs”), i.e., individuals who were entitled to the subsidy, whose subsidy period expired on November 30th and who failed to pay their premium for December coverage. The retroactive payment period is 60 days from the enactment of the provision (i.e., February 17, 2010) or, if later, 30 days after provision of the Notice described in (e) below.  

(d) Applies the same refund/credit rules under the original ARRA legislation to any AEI whose subsidy expired in November and who have since paid the full COBRA premium.  

(e) Requires that a special Notice be provided to (i) all AEIs who are on COBRA on or after October 31st, (ii) individuals whose qualifying event is a termination of employment (whether voluntary or involuntary) occurring on or after October 31st and on or before December 19, 2009, and (iii) individuals whose subsidy period expired on or before December 19, 2009 and who failed to timely pay their premiums for further COBRA coverage. This notice must be provided within 60 days after the date of enactment, i.e., by February 17, 2010.  

(f) Requires that COBRA notices reflect the new credit provisions for persons who have a termination of employment after December 19, 2009.  

(g) Addresses an issue with regard to the original subsidy that precluded eligibility for the subsidy for many individuals who terminated in the last month before the original sunset date but whose COBRA period would not commence until January 2010. As originally provided under ARRA, both the qualifying event and the 18 month COBRA period must commence prior to the original sunset date of December 31st.  

As revised, eligibility for the COBRA subsidy is conditioned only on a qualifying event that is the involuntary termination of employment occurring on or before the new February 28, 2010 sunset date without regard to when the COBRA coverage period actually begins. Thus, for employers providing subsidized coverage that defers the COBRA start date, the 15 month period (which is applicable only to the COBRA period) may not commence until well into the future.

What Needs to Be Done Now:

As described in (e) above, a special notice must be provided to certain individuals by February 17, 2010. For persons who terminate employment after December 19, 2009, the COBRA notice must reflect the new law. In order to meet these deadlines, as well as comply with the new law on an ongoing basis, plan administrators need to develop a plan of action for compliance. In many cases, this will involve coordination with third party administrators. We recommend that you contact your administrator to discuss how they will implement the new requirements, including addressing the following issues:

  • The date for providing the special Notices to individuals (i) who were on COBRA at any time on or after October 31st, (ii) whose qualifying event is a termination of employment on or after October 31st and before December 19, 2009, or (iii) whose subsidy period ended on or before December 19, 2009 and who failed to timely pay their premiums for further COBRA coverage;  
  • The date for revising notices for on-going qualifying events (i.e., terminations of employment after December 19, 2009);  
  • Processes for implementing credits or refunds for persons who paid the full December premium; and  
  • An overview of systems changes that may be needed to implement the new rules, such as data that the employer may need to provide to a third party administrator.

Other New Developments

Further possible changes to COBRA are being considered by the Congress. Section 3302 of H.R. 2947, the Jobs for Main Street Act, 2010, as passed by the House contains further expansion and modification of the COBRA credit. It is not clear when the Senate will consider this legislation.