The 65 percent COBRA premium subsidy for involuntarily terminated workers has been extended into 2010 and expanded in scope. The Fiscal Year 2010 Defense Appropriations Act, which was signed into law December 19, 2009, includes the amendments to COBRA.

Previously, qualified beneficiaries whose COBRA eligibility arose from an employee's involuntarily termination from employment occurring between September 1, 2008 and December 31, 2009, and who elected COBRA continuation coverage (assistance eligible individuals or "AEIs"), were entitled to pay only 35 percent of the monthly COBRA premiums for up to nine months of COBRA coverage. Employers were required to pay the other 65 percent, but they could recoup that payment as an offset against payroll taxes.

The new law extends both the December 31, 2009 cut-off date for subsidy eligibility and the 9 month subsidy period. Employees who are involuntarily terminated up to February 28, 2010 are now eligible for the COBRA subsidy. Instead of 9 months of subsidized premiums, the subsidy period has been increased to 15 months.

AEIs who are currently receiving or who have exhausted the nine-month subsidy will also be allowed the additional six months of subsidized premium, even if their COBRA coverage has already been cancelled. If those individuals stopped paying for COBRA coverage after the 9 month subsidy ran out, they will have until February 17, 2010 (or, if later, 30 days after receiving notice of their extended subsidy rights) to make any premium payments they missed and resume COBRA coverage retroactively for up to six more subsidized months. Individuals who paid the full COBRA premium after the subsidy ran out will be entitled to a refund of the excess contributions or a credit against future COBRA premium payments.

Plan administrators must give notice of these new COBRA rights not later than February 17, 2010 to any AEI eligible for the COBRA subsidy on or after October 31, 2009, and to AEIs who are currently receiving the nine-month subsidy or who are still within their COBRA period but whose nine-month subsidy has expired. COBRA materials must be updated to include information on the subsidy for those who become eligible for the COBRA subsidy after December 19, 2009. While Department of Labor guidance is expected before the notice deadline, employers and plan administrators should start gearing up now to meet that notice obligation and to coordinate compliance with their health plan insurers, COBRA administrators, plan recordkeepers and internal payroll departments.