The much-publicized COBRA subsidy contained in the American Recovery and Reinvestment Act (ARRA), commonly known as the “stimulus bill,” has been extended and expanded by Congress through House Resolution 3326. Under ARRA, individuals who were involuntarily terminated and became eligible for COBRA benefits between September 1, 2008 and December 31, 2009 were eligible for 9 months of subsidized COBRA premiums. The government, through a payroll tax rebate to employers, paid 65% of an eligible employee’s COBRA premiums for 9 months. This meant that employees could pay just 35% of what they would ordinarily pay for COBRA benefits. (Please see our earlier blog posting relating to the original passage of ARRA.)

HR 3326 expands the eligibility period to include individuals involuntarily terminated before February 28, 2010. In addition, it extends the length of the subsidy period to 15 months (from 9 months).

Individuals who were on COBRA coverage for the 9-month subsidy, may re-enroll in COBRA and receive benefits without any gap in coverage for the newly extended 15 months, less the 9 months they already received. The amendment gives employees a period of 60 days to re-enroll or, if later, 30 days after they receive notice of the extended subsidy. Employers are required to notify employees of the 15-month extended COBRA subsidy who were on COBRA on or after October 31, 2009 or who have a qualifying event on or after October 31, 2009. It is unclear how long of a COBRA coverage lapse can exist before an individual is no longer eligible to make up the premiums and re-enroll. We will be watching for further guidance form the DOL on this point and reporting further on the blog. Any employees who paid full COBRA premiums after expiration of their 9-month subsidy period who are now eligible for the new 15-month premium subsidy, will be given a refund of 65% of their premiums for any periods now covered by the extended subsidy.

In addition, this amendment to ARRA conditions the eligibility for the subsidy on only the involuntary termination date. Thus, if the COBRA start date is deferred until after February 28, 2010 but the involuntary termination date was pre-February 28, the employee will still be eligible for the subsidy. All of the remaining rules for the COBRA subsidy set forth by the Department of Labor presumably remain in effect for this extension and expansion.

We will update you as more details become available on this COBRA subsidy extension from the Department of Labor. In the meantime, here are some action items to be thinking about:

  • Identify all individuals who were on COBRA coverage on or after October 31, 2009 or had a COBRA qualifying event on or after October 31, 2009 and would be eligible for notice of the 15-month subsidy.
  • Identify any individuals who allowed COBRA coverage to lapse after the termination of the 9-month COBRA subsidy.
  • Identify any individuals who paid their full COBRA premiums because of the expiration of the subsidy and will now be eligible for a refund or credit on future premiums.
  • Watch for new sample notices from the Department of Labor reflecting these changes. We will post a link to these notices when they are available.
  • Informally notify employees who are involuntarily terminated between now and when the COBRA notices are distributed about the existence of the extended COBRA subsidy to avoid confusion in the interim.