On December 19, 2009, President Obama signed into law the Department of Defense Appropriations Act, 2010 (the “Act”). The Act, which primarily provides funding for the Department of Defense, also provides for an extension of the COBRA subsidy enacted on February 13, 2009 as part of the federal stimulus package. Our previous alert, COBRA Provisions in Economic Stimulus Legislation Require Employers to Act Now, covers many subsidy basics and is available at http://www.ngelaw.com/news/pubs_detail.aspx?ID=990.
Eligibility for Subsidy. The original subsidy was generally available to those who lost coverage under a group health plan due to an involuntary termination of employment between September 1, 2008 and December 31, 2009. The Act extends the eligibility period through February 28, 2010. The limitations applicable to the original subsidy, including income limitations, continue to apply to the subsidy extension.
Six Additional Months of Subsidized Coverage. The Act lengthens the maximum period of subsidized coverage from nine months to fifteen months. The subsidy assistance amount remains at the same level – 65% of premiums. The individual remains responsible for paying the remaining 35% of premiums.
Availability of the Subsidy. The original subsidy was available only if an individual was involuntarily terminated and lost group health plan coverage between September 1, 2008 and December 31, 2009. Thus, an individual who was terminated in December 2009 but remained covered through December 31, 2009 was not previously eligible for the subsidy. Under the Act, eligibility for the subsidy is based on the date an individual is involuntarily terminated from employment; the date that group health plan coverage is lost following the involuntary termination of employment does not affect eligibility for the subsidy. Therefore, an individual involuntarily terminated on or before February 28, 2010 may be eligible for the subsidy, even if that person’s group health plan participation does not terminate until March 1, 2010 or later.
Individuals Covered by Original Subsidy. Many individuals eligible for the original subsidy when it first became effective exhausted the subsidy on November 30, 2009. Some of these individuals chose to drop coverage rather than pay the higher premiums effective in December 2009; others chose to stay on COBRA, paying the entire COBRA premium. The Act provides that these individuals may generally take advantage of the additional six months of the premium subsidy that is now available.
An individual that exhausted the original subsidy and began paying full COBRA premiums must contact his or her plan administrator in order to arrange for a refund or a credit against future COBRA payments. Individuals that exhausted the original subsidy and chose to drop coverage will now generally have the opportunity to re-elect coverage, so long as (1) the individual was covered for nine months under the original COBRA subsidy, and (2) the individual pays 35% of the missed premiums by the latest of (1) February 17, 2010, (2) thirty days after receiving notice regarding the subsidy extension or (3) the end of the otherwise applicable grace period. Individuals that dropped COBRA coverage prior to exhausting the subsidy, or who never began COBRA coverage, are not eligible to retroactively elect coverage.
Notices Required. The Act requires plan administrators to provide notices to affected individuals of the premium subsidy extension. As described below, certain affected individuals need to receive a notice describing the premium subsidy extension (“Premium Assistance Extension Notice”). In addition, individuals who have a qualifying event on or after December 20, 2009 must receive a general COBRA notice that includes information on the premium subsidy extension (“Updated General Notice”). The Secretary of Labor issued a model of each type of notice, along with an updated state law continuation coverage notice. Each model notice is available online at http://www.dol.gov/ebsa/COBRAmodelnotice.html via the Department of Labor website.
Plan administrators must provide the Premium Assistance Extension Notice to:
- Any employee whose employment was terminated on or after October 31, 2009, lost health coverage and was not provided an Updated General Notice incorporating the new premium subsidy changes made by the Act. These employees must be provided notice of the subsidy extension even if their termination of employment was voluntary. Notice also must be provided to any family members of the employee who is entitled to continuation coverage. Plan administrators must provide this notice by February 17, 2010.
- Any “assistance eligible individual” as of October 31, 2009. An assistance eligible individual is an employee or family member who experienced a qualifying event for continuation coverage due to an involuntary termination of employment between September 1, 2008 and October 31, 2009, and timely elected COBRA coverage. Plan administrators must provide this notice by February 17, 2010.
- Any individual that has exhausted his or her nine-month premium reduction period. Plan administrators must send notice to these individuals within sixty days after the end of the individual’s nine-month premium reduction period. For example, if the nine-month premium reduction period ended November 30, 2009, notice must be provided by January 29, 2010.
In some cases, an individual may fall into multiple categories for receiving the Premium Assistance Extension Notice. In that case, a plan administrator may provide the individual with the Premium Assistance Extension Notice as of the earlier of the notice dates.
Plan administrators must provide an Updated General Notice to anyone experiencing any type of qualifying event on or after December 20, 2009. The notice must be provided within the standard time frame for COBRA election notices.
Action Steps. Employers must act quickly to implement the COBRA subsidy extension. Key action steps include the following:
- Send notices of the extension of the COBRA premium subsidy as described above.
- Update your COBRA continuation coverage notices.
- Review whether your COBRA tracking system needs to be modified to reflect the subsidy extension.
- Determine how to compensate individuals who paid 100% of their December 2009 and/or January 2010 premiums after exhausting the nine month subsidy, either through reimbursement or a credit against future COBRA payments.
- If a third party administers your plan’s COBRA obligations, talk with your COBRA administrator about its readiness to administer the premium subsidy extension.