This report summarizes the extension to the COBRA health care subsidy that was enacted in the Department of Defense Appropriations Act, 2010 (DOD Act).

ARRA Subsidy

The COBRA subsidy provisions were originally enacted in the American Recovery and Reinvestment Act of 2009 (ARRA), which stated that "assistance-eligible individuals" could pay only 35 percent of any COBRA premium for up to nine months of coverage. The subsidy was originally set to expire December 31, 2009 — covered employees who were involuntarily terminated after that date (and their eligible dependents) would not have been eligible for the subsidy.

DOD Act Subsidy Extension

The COBRA subsidy extension now applies to covered employees involuntarily terminated (other than for gross misconduct) on or before February 28, 2010. In addition, the subsidy period has been extended from nine months to 15 months. Finally, the new rule does not require that COBRA coverage begin by February 28, 2010. This means that employees who are involuntarily terminated by February 28, 2010 will be eligible for the extended subsidy, even if their COBRA coverage does not begin until March 2010.

The employer sponsoring the health plan can continue to claim an offsetting credit against its payroll taxes for the reduction in the amount of premium an assistanceeligible individual must pay. The DOD Act applies to both private- and public-sector employers.

Transition Period

The new law creates a transition period for assistanceeligible individuals who have already reached the end of the nine-month ARRA subsidy period but not the 15- month DOD Act extended period. Special rules will allow these individuals to pay retroactive subsidized premiums for coverage during the transition period.

Required Notices

Plan administrators are required to provide a notice regarding the new COBRA subsidy rules to:

  • Individuals who are assistance-eligible on or after October 31, 2009 by February 17, 2010;
  • Individuals who experience a COBRA qualifying event relating to termination of employment on or after October 31, 2009 by February 17, 2010; and
  • Individuals who have a qualifying event after December 19, 2009 within the normal COBRA election timing rules.

Additional notices are also required for individuals affected by the special transition period rules.