On December 21, 2009, President Obama signed into law an extension of the COBRA subsidy program that was originally included in the American Recovery and Reinvestment Act (ARRA). The new legislation extends the subsidy program, which allows involuntarily terminated employees to purchase COBRA continuation coverage by paying only 35 percent of the otherwise required monthly premium. The employer is required to pay or absorb the remaining 65 percent of the cost and may then seek reimbursement through a credit on federal payroll taxes. The new law extends the eligibility period through February 28, 2010 (the eligibility period was previously set to end on December 31, 2009) and extends the maximum subsidy period by an additional six months (from nine months to 15 months). In other words, employees involuntarily terminated during the period from September 1, 2008, through February 28, 2010, may receive subsidized COBRA coverage for up to 15 months.

In addition, the new legislation creates a period for retroactive payment of premiums for eligible individuals whose subsidy period expired before the extension was enacted and who have not yet paid their premium for their 10th or subsequent month of subsidized coverage. Those individuals are required to pay their portion of the missed premium(s) within 60 days of December 21, 2009, or, if later, within 30 days after the administrator of the group health plan provides the individual with notice that the subsidy program has been extended. Eligible individuals whose subsidy expired before the extension was enacted and who have since paid the full COBRA premium will be eligible for reimbursement of amounts paid in excess of the required 35 percent.

The new legislation also requires notice of the new subsidy extension to all eligible individuals who are on COBRA continuation coverage on or after October 31, 2009, or whose qualifying event is a termination of employment occurring on or after October 31, 2009. The notice must be provided within 60 days of enactment which is February 19, 2010. Going forward, administrators need to incorporate this additional notice into their standard COBRA notification package.

Finally, the legislation addresses an oddity of ARRA's original subsidy program, which required that the COBRA period commence before the original December 31, 2009, sunset date. The revisions now clarify that the qualifying event, not the commencement of the COBRA period, must occur on or before the February 28, 2010, sunset date, without regard to when the COBRA coverage period begins