President Obama signed into law the Department of Defense Appropriations Act, 2010 (DOD Act) December 19, 2009, which includes provisions that immediately extend the COBRA subsidy enacted in February 2009 under the American Recovery and Reinvestment Act of 2009 (ARRA). ARRA’s COBRA subsidy provided for temporary COBRA and state law health continuation coverage premium assistance, for a period of up to nine months, for individuals who are involuntarily terminated from employment and become eligible for COBRA during the period from September 1, 2008, through December 31, 2009. Please see our February 20, 2009 alert, “Immediate Action Required to Implement COBRA Subsidy Provisions in Stimulus Plan,” for more information about the original COBRA subsidy provisions. Click here to view the alert.
The DOD Act extends the maximum subsidy period from nine months to 15 months and the eligibility period through February 28, 2010 (instead of December 31, 2009). The COBRA premium subsidy amount remains unchanged at 65 percent of an assistance eligible individual’s COBRA premium. Plan administrators will be required to provide new notices of the extension.
The New “Assistance Eligible Individual”
The DOD Act revises the definition of “assistance eligible individual” (AEI) to eliminate the requirement that an eligible individual become eligible for COBRA coverage during the eligibility period. Instead, under the new law, only the qualifying event (i.e., the involuntary termination of employment) must occur during the eligibility period. A COBRA-qualified beneficiary (i.e., a covered employee, his or her covered spouse or dependent child) is an AEI if:
- The applicable qualifying event is the employee’s involuntary termination during the period beginning September 1, 2008, and ending February 28, 2010; and
- The qualified beneficiary timely elects COBRA.
This change addressees the issue many employers were facing with December 2009 terminations. Under ARRA’s provisions, in the case of health plans that extend coverage through month-end (e.g., December 2009 terminations result in health plan coverage loss on January 1, 2010), employees terminated in December 2009 would not have been eligible for the subsidy. The DOD Act’s provisions eliminate the requirement that the termination of coverage also occur during the eligibility period, so only the date of the involuntary termination of employment is relevant to determining subsidy eligibility – if the AEI thereafter becomes eligible for COBRA as a result of the termination.
Two Extensions – Subsidy Period and Eligibility Period
The DOD Act extends ARRA’s COBRA premium subsidy for AEIs in two ways:
The original nine-month subsidy is extended to 15 months, which may require retroactive reinstatement of COBRA coverage or reimbursement for already paid premiums. The DOD Act permits an individual who is otherwise eligible for the subsidy because of the new 15-month eligibility period, but who did not pay the COBRA premium for a month or months during a “transition period” to retroactively pay the premium at the subsidized rate and reinstate COBRA coverage. The “transition period” is a period of coverage beginning before December 19, 2009, to which the extension of the COBRA subsidy (i.e., from nine to 15 months) applies. This provision will apply only if:
- The AEI maintained COBRA coverage until the AEI’s nine-month subsidy period expired; and
- The AEI pays the subsidized COBRA premium by February 17, 2010, or, if later, 30 days after notification by the plan administrator.
AEIs who maintained COBRA coverage after their COBRA subsidy ended in November or December of 2009 have, in effect, overpaid premiums due to the subsidy extension. Health plans may provide reimbursement by either (i) issuing the AEI a refund, or (ii) applying a credit toward future premium balances (as long as it is reasonable to believe the credit can be used up within 180 days of payment).
The eligibility period for the subsidy is extended through February 28, 2010. To be eligible for the COBRA premium subsidy, an AEI’s involuntary termination (the only COBRA qualifying event that entitles an AEI to the premium subsidy) must occur during the period beginning September 1, 2008, and ending February 28, 2010.
Plan administrators will have to update COBRA notices for the terms of the COBRA subsidy extension. In addition, plan administrators must provide notice about the DOD Act’s changes to the COBRA subsidy to certain individuals, including some who have already been provided a COBRA election notice, as follows:
Notice to Individuals Who Lost Premium Assistance
Plan administrators are required to provide notice to individuals who are eligible to retroactively reinstate COBRA coverage (including notice of the opportunity to make Notices Plan administrators will have to update COBRA notices for the terms of the COBRA subsidy extension. In addition, plan administrators must provide notice about the DOD Act’s changes to the COBRA subsidy to certain individuals, including some who have already been provided a COBRA election notice, as follows:
Notice to Individuals Who Lost Premium Assistance
Plan administrators are required to provide notice to individuals who are eligible to retroactively reinstate COBRA coverage (including notice of the opportunity to make retroactive premium payments) and to individuals who are due a reimbursement. This notice must be provided within 60 days of the date the pre-DOD Act COBRA subsidy period ended (e.g., by January 29, 2010, for an individual who began COBRA under the ARRA subsidy on March 1, 2009, and whose subsidy period under ARRA ended on November 30, 2009). Notice to AEIs and Certain Qualified Beneficiaries On and After October 31, 2009 For individuals who (i) were AEIs at any time on or after October 31, 2009, or (ii) experience a qualifying event (consisting of termination of employment, either voluntary or involuntary) on or after October 31, 2009, the plan administrator must provide additional notification that sets forth information regarding the extended premium assistance. Plan administrators are required to provide this notice:
- By February 17, 2010; or
- For qualifying events occurring after December 19, 2009, within the normal timeframes for providing continuation coverage notices.
The Department of Labor is expected to issue model notices for these purposes in early 2010. Plan administrators, however, may want to draft their own notices for AEIs who are eligible to retroactively reinstate COBRA coverage – in order to start the clock running on the payment due date for retroactive premiums.
Plan sponsors and administrators should consider the following action items:
Assess All Terminations
Assess all AEIs since the ARRA subsidy began to determine which AEIs are eligible for the DOD Act’s subsidy extension, and to whom new notices must be sent. Assess all AEIs as of October 31, 2009, and all terminations beginning October 31, 2009, to determine whether an additional notice is required for qualified beneficiaries. Continue to track terminations for all employees through February 28, 2010, to determine whether the subsidy applies.
Prepare Revised Notices
Update COBRA election notices and other relevant COBRA communications.
Review Current Processes
Like ARRA, the DOD Act’s changes can affect an employer’s benefits, finance, payroll and IT systems, and these systems will need to be modified to accommodate the DOD Act’s changes. This includes:
- Continuing to pay the 65 percent subsidy and obtaining reimbursement through the payroll tax system;
- Adjusting AEIs’ COBRA premium payment amounts;
- Reflecting AEIs’ reduced premiums on COBRA premium statements;
- Tracking and recalculating AEIs’ maximum subsidy period and cut-off dates;
- Reimbursing AEIs for COBRA premium overpayments for November/ December 2009;
- Reinstating COBRA coverage for AEIs who lost coverage after their subsidy ended; and
- Preparing required government reports. In the case of a plan with an outside COBRA administrator, these issues will need to be coordinated with the administrator.
Further Expansion Possible
The Senate has yet to formally review and vote on the Jobs for Main Street Act, 2010 (HR 2847) (Jobs Act) legislation that was passed by the House of Representatives in December 2009. The Jobs Act would further expand the COBRA subsidy, including extended eligibility to employees who are involuntarily terminated through June 30, 2010. The Senate is likely to consider the Jobs Act early in 2010.