In early 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was enacted to provide up to nine months of premium subsidies for COBRA continuation coverage and special election rights to individuals who lose group health plan coverage due to an involuntary termination of employment. See our Tax Alert dated February 17, 2009. On December 19, 2009, as part of the Department of Defense Appropriations Act, 2010, President Obama extended the COBRA premium subsidy provisions of ARRA. The changes are summarized below:
- Extension of Eligibility Period. ARRA provides a COBRA premium subsidy for employees (and their covered dependents) who are involuntarily terminated between September 1, 2008 and December 31, 2009. The eligibility period has been extended for an additional two months — for involuntary terminations occurring on or before February 28, 2010.
- Extension of Duration of Premium Subsidy. Under ARRA, the subsidy was available for up to nine months of COBRA coverage. The maximum period for receiving the COBRA premium subsidy has been extended for an additional six months, for a maximum period of 15 months.
- Additional Notification Requirements. Employers must notify "affected individuals" of these changes by February 17, 2010. Affected individuals are: (1) individuals who are assistance eligible individuals on or after October 31, 2009, and (2) individuals who have a COBRA qualifying event of termination of employment (voluntary or involuntary) on or after October 31, 2009.
- Transition Period Rules. There are special rules for assistance eligible individuals who exhausted their full nine months of premium assistance before the period was extended to 15 months. These individuals fall into two groups. The first group—those who dropped COBRA after their original nine-month subsidy period ended—must be permitted to maintain their COBRA coverage by retroactively paying the 35% of premium costs that were due during their "transition period." (The term "transition period" appears to mean any period of coverage beginning before December 19, 2009, during which an assistance eligible individual would have been eligible for premium assistance had the extension been available earlier.) Such individuals must make payment by February 17, 2010 or, if later, 30 days after they are provided notice of the extension. The second group—those who paid an unsubsidized premium during their transition period—must be provided with a refund or credit against future premiums. Plan administrators must provide a notice of the extended subsidy, including information about the right to make retroactive payments, to both groups of individuals within the first 60 days of the individual’s transition period.
Employers should begin compiling a list of all COBRA qualified beneficiaries who currently receive the COBRA subsidy or who received the COBRA for the nine-month maximum period. In addition, employers will need to update their COBRA notices to reflect these extensions. While commentators expect the U.S. Department of Labor to issue model notices, employers should make certain that employees who are involuntarily terminated after December 19, 2009 and on or before February 28, 2010 receive updated COBRA election notices which reflect the COBRA subsidy period as being a maximum of 15, rather than nine, months.