Background

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (“ARRA”). ARRA significantly expands the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”) rules. In accordance with ARRA, assistance eligible individuals who are eligible for COBRA coverage because of their own or a family member's involuntary termination from employment that occurred from September 1, 2008 through December 31, 2009 and who elect COBRA, may be eligible to pay a reduced premium. Pursuant to ARRA, assistance eligible individuals pay only 35% of the full COBRA premiums under their plans for up to 9 months and employers (or other responsible entity) may recover the remaining 65% of the premium by taking the subsidy amount as a credit on its quarterly employment tax return.  

Additionally, if the assistance eligible individuals individual was offered Federal COBRA continuation coverage as a result of an involuntary termination of employment that occurred at any time from September 1, 2008 through February 16, 2009, and that individual declined to take COBRA at that time, or elected COBRA and later discontinued it, he/she may have another opportunity to elect COBRA coverage and pay a reduced premium.  

Notice Requirements

On Thursday, March 19, 2009, in accordance with the requirements of ARRA, the Department of Labor (“DOL”) provided four model COBRA continuation notices. These four model notices contain important information about the mechanics of the premium subsidy and provide assistance eligible individuals with information regarding their eligibility, obligations and restrictions in order to obtain the premium subsidy.  

The model notices are summarized below. These model notices are available on the DOL’s website at: http://www.dol.gov/ebsa/COBRAmodelnotice.html. The DOL has also provided a FAQ for Employers About COBRA Premium Reduction Under ARRA which is available at: http://www.dol.gov/ebsa/COBRA.html.  

  1. General Notice (Full Version): This notice must be sent to all qualified beneficiaries, not just covered employees, who experienced a qualifying event at any time from September 1, 2008 through December 31, 2009, regardless of the type of qualifying event. This full version includes information on the premium reduction as well as information required in a COBRA election notice. {Note: There is an apparent inconsistency regarding who is entitled to this notice. The Federal Register states the notice must be provided to all qualified beneficiaries. In contrast, the DOL’s website states that this notice should be provided to all qualified beneficiaries who have not yet received a notice. We expect the DOL to clarify this inconsistency.}  
  2. General Notice (Abbreviated Version): This abbreviated version may be sent lieu of the full version summarized above to individuals who experienced a qualifying event on or after September 1, 2008, have already elected COBRA coverage, and still have it. The abbreviated version of the General Notice advises those with current COBRA coverage of the availability of the premium reduction and includes the same information as the Full Version regarding the availability of the premium reduction and other rights under ARRA, but it does not include the COBRA coverage election information.
  3. Notice in Connection with Extended Election Periods: This special notice must be sent to any assistance eligible individual (or any individual who would be an assistance eligible individual if a COBRA continuation election were in effect) who was involuntarily terminated from September 1, 2008 through February 16, 2009. This notice must be sent to all assistance eligible individuals who either (1) did not elect COBRA continuation coverage or (2) who elected it but subsequently discontinued COBRA. This notice must be provided to all assistance eligible individuals by April 18, 2009.  
  4. Alternative Notice: Insurance issuers that provide group health insurance coverage must send the Alternative Notice to persons who became eligible for continuation coverage under a State law. Approximately 44 states require employers from 2-19 employees to provide mini-COBRA coverage. These employers should check with their insurance carriers to determine whether mini-COBRA applies to their employees.  

Upcoming DOL Sponsored COBRA Compliance Webcast

On Tuesday, March 24, 2009 at 11:30 a.m. Eastern Time, the Department of Labor will be joined by the U.S. Department of the Treasury and the Internal Revenue Service to discuss the new COBRA provisions and provide assistance in complying with the new requirements, including the model notices and the tax credit. If you have questions about the new law, this is your chance to hear from the federal regulators and have the opportunity to ask them questions. You can register at: http://www.dol.gov/ebsa/COBRA.html.  

Action Steps

In accordance with ARRA’s notice requirements, all employers that sponsor a group plan that is subject to the Federal COBRA provisions should review the content and requirements of these model notices. Although employers are not required to use the DOL’s model notices, it may be prudent consider using these model notices due to the unique requirements and obligations related to the premium subsidy.