As part of the Department of Defense Appropriations Act of 2010 (the "2010 DODA Act"), which was signed into law on December 19, 2009, Congress has extended the eligibility period and the span of coverage for the COBRA premium reduction of 65 percent. A summary of the major aspects of the changes is below.
Eligibility date extended. The recent action by Congress extends the COBRA subsidy to individuals whose involuntary termination of employment occurs on or before February 28, 2010. The 2010 DODA Act also clarifies that to qualify for the subsidy, an individual does not have to lose medical plan coverage prior to February 28, 2010. The qualifying event is the termination, rather than the end of coverage.
Length of coverage expanded. The length of the COBRA subsidy period is extended from the original 9 months to a total of 15 months. This means that the individuals who are currently receiving the subsidy can continue to receive it for up to 15 months. And, individuals who dropped coverage, believing that their entitlement to the subsidy had ended, may re-elect to continue COBRA for the full length of the subsidy.
Retroactive elections. Individuals who had reached the end of the reduced premium period before the legislation extended it to 15 months will have additional time to pay the reduced premiums related to the extension. To continue their coverage, they must pay the 35 percent of premium costs within 60 days after the date of enactment or, if later, 30 days after notice of the extension is provided by a plan administrator. If such an individual did not pay his or her December 2009 COBRA premium because the subsidy had expired, the individual can re-enroll in COBRA and receive the subsidy for December 2009 (without any gaps in coverage) and for an additional five months until May 2010.
Rebate for transition period. The coverage provider may apply the excess premium payments to future COBRA premiums due from the individual if, and for as long as, it is reasonable to believe that such amounts can be used within the next 180 days. The excess amount that cannot be so used must be refunded to the individual within 60 days after the excess premium payment or after the day, within such a 180-day period, on which it is determined that the excess amount cannot be applied toward future premiums.
Notice requirements for plan administrators. The new notice rules require insurance companies and employers sponsoring self-insured group health plans to provide two types of notice.
The first is a notice describing the extension and the right to pay back-premiums and reinstate coverage retroactively. This notice must be provided to subsidy-eligible COBRA beneficiaries who were either dropped from COBRA coverage for nonpayment of premiums between the end of their original subsidy period and December 19, 2009, or overpaid their COBRA premium while unaware of the extension. This notice is due within 60 days after the end of their original subsidy period, which would be January 29, 2010, for a COBRA beneficiary whose subsidiary period ended on November 30, 2009.
The second notice merely describes the six-month extension. This notice must be provided to anyone who was a subsidy-eligible COBRA beneficiary on or after October 31, 2009, and anyone who suffers a qualifying event that is a termination of employment (voluntary or involuntary) on or after that date. While the notice is supplied even to individuals whose qualifying events are voluntary terminations of employment, the subsidy is not available to these individuals. This notice must be supplied no later than 60 days after enactment of the new law, Feb. 17, 2010, or, for qualifying events that occur after the date of enactment, within the time provided by the regular COBRA notification rules.
Tax credit. The Internal Revenue Service recently changed its position with respect to the procedures for claiming the tax credit for a COBRA subsidy that relates to a prior year's coverage period but is paid in the current year. The current policy of the Internal Revenue Service is that if an employer receives payment for an assistance-eligible individual's 35 percent share of the COBRA premium for 2009 coverage, the employer may claim the credit for the related premium subsidy on IRS Form 941 for either the quarter in 2010 in which it receives the individual's 35 percent premium payment or a later quarter in 2010, but not for a quarter in 2009 -- even though the premium is for coverage in 2009. In all cases, the employer must claim the credit for the subsidy amount on Form 941 for the quarter during which the employer's payroll tax deposits were reduced based on the receipt of the individual's 35 percent premium payment.
The Department of Labor has recently issued new model notices and other guidance regarding the extensions.