On December 21, 2009, President Obama signed into law the Fiscal Year 2010 Defense Appropriations Act (the “Act”). The Act contains provisions that clarify, extend and expand the COBRA premium subsidy enacted earlier this year as part of the American Recovery and Reinvestment Act of 2009 (“ARRA”). The extension now runs through February 28, 2010, expands the subsidy period to fifteen months and brings new compliance obligations for employers.

The Act extends and clarifies the eligibility period for the COBRA subsidy created by ARRA. The eligibility period now runs through February 28, 2010. Eligibility for the premium reduction is determined based on the date of the qualifying event (the involuntary termination) rather than the subsequent loss of coverage.

In addition, the Act expands the premium subsidy from nine months to fifteen months. The Act provides individuals who discontinued coverage after exhausting nine months of subsidized premiums with an additional transition period during which they may pay premiums retroactively to reinstate their coverage. To do so, such individuals must pay that amount by the later of February 19, 2010 (60 days after enactment of the Act) or 30 days after receipt of notice from their plan administrator. The Act also permits employers to apply the same crediting and refund rules applicable in ARRA to individuals who have already paid the full nine months of reduced premiums and are currently paying the full COBRA premium.

The Act also requires employers to provide additional notices. Plan administrators must provide a notice describing the extended and expanded subsidy rules to any individual who was an assistance eligible individual or who experienced a qualifying event at any time beginning on or after October 31, 2009. The Act requires special notice describing the right to make retroactive payments at the reduced rate to individuals who ended COBRA coverage after paying nine months of subsidized premiums. In addition, employers must notify individuals who have exhausted the nine-month subsidy and are currently paying the full COBRA premium of their right to receive a credit or refund if they paid more than the Act now requires.