On December 19, 2009, President Obama signed into law the Department of Defense Appropriations Act, 2010, Pub. L. No. 111-118 (the “Act”). Section 1010 of the Act extends the COBRA premium assistance program, originally enacted as part of the American Recovery and Reinvestment Act of 2009 (“ARRA”), in two respects that will effect employer-sponsored group health plans. First, it expands the COBRA premium assistance program to cover assistance eligible individuals who become eligible for COBRA continuation coverage between January 1, 2010, and February 28, 2010. Second, it extends the maximum period during which assistance eligible individuals may pay reduced premiums through the COBRA premium assistance program from nine months to 15 months. The Act might also require employer-sponsored health plans to supplement or modify COBRA notices and accept lower premium payments for certain pre-enactment periods of coverage under certain circumstances.
COBRA requires that employer-sponsored group health plans provide employees and their families, who would otherwise lose coverage as a result of a termination of employment, divorce, or on account of certain other events, a chance to continue to buy coverage for a limited period after the event. The maximum coverage period is generally 18 months, but can be longer depending on the reason for the loss of coverage, and can be extended if the individual becomes disabled. The plan may charge up to 102% of the cost of coverage for similarly situated active participants (the “COBRA premium”) or up to 150% if the maximum coverage period is extended because of disability. COBRA does not apply to group health plans sponsored by churches, governmental entities, or small employers (fewer than 20 employees), but the federal government and most states have similar laws that apply to these plans. ARRA treats these laws the same as COBRA for purposes of this provision, so we refer to them as COBRA in this discussion.
As described in greater detail in our prior client alert1, the COBRA premium assistance program, as enacted through ARRA, requires that employer-sponsored group health plans treat certain individuals who lost their jobs and health coverage as a result of an involuntary termination between September 1, 2008, and December 31, 2009, and their families (“assistance eligible individuals”) as if they paid their full COBRA premium as long as they pay at least 35% of the COBRA premium otherwise charged by the employer. The employer (or the insurance company if the plan is fully insured, or the plan in the case of a multiemployer plan) is reimbursed for the 65% not received from the assistance eligible individual via a credit against its payroll taxes equal to the remaining amount, or a direct payment to the extent the credit exceeds its payroll tax liabilities. As originally enacted, ARRA required employers to accept the reduced premium for up to nine months.
Extension of Applicable Period
The Act extends the COBRA premium assistance program for two additional months, meaning that assistance eligible individuals who lose health coverage between January 1, 2010, and February 28, 2010, as a result of an involuntary termination between September 1, 2008, and February 28, 2010, are eligible for COBRA premium assistance. The COBRA premium assistance program as originally enacted and as amended by the Act will apply to assistance eligible individuals who become eligible for COBRA premium assistance during this extension period.
Extension of Maximum Duration of Premium Assistance
The Act also extends the maximum duration of COBRA premium assistance for all assistance eligible individuals from nine months to 15 months. This extension applies to assistance eligible individuals regardless of whether the involuntary termination occurred during the initial COBRA premium subsidy period or during the extended period provided under the Act.
COBRA premium assistance still will terminate before the end of the maximum duration period if the assistance eligible individual becomes eligible for Medicare or another group health plan. As was true before the Act, any assistance eligible individual who becomes eligible for Medicare or another group health plan has an affirmative obligation to notify the plan from which the individual is receiving COBRA.
Expanded Notice Requirements
In addition to the original ARRA notice requirements described in our prior client alert, the Act requires that any individual who was an assistance eligible individual at any time on or after October 31, 2009, or who experiences a qualifying event (consisting of termination of employment) relating to COBRA continuation coverage on or after October 31, 2009, be sent an additional notification with information regarding the amendments made by the Act. This supplemental notification must be provided by February 17, 2010, or, in the case of a qualifying event occurring after October 31, 2009, in a manner consistent with the timing of the general COBRA premium assistance notifications as required by ARRA.
This additional notice also must be sent to any assistance eligible individual who failed to timely pay his or her premium for a period of coverage beginning before December 19, 2009, and during which the assistance eligible individual is newly entitled to COBRA premium assistance because of the extension of the subsidy period to 15 months by the Act (the “transition period”), and to any assistance eligible individual who paid 100% (i.e., not 35%) of his or her COBRA premium during this period. For these recipients, the notice must include information regarding an individual’s ability to make retroactive premium payments as described below.
Election to Pay Premiums Retroactively and Maintain COBRA Coverage
Under the Act, employer-sponsored group health plans must treat certain assistance eligible individuals as having timely paid their COBRA premiums despite the individual’s failure to make such a payment. If the missed payment is for COBRA continuation coverage during the transition period, the individual must be treated as having timely paid his or her COBRA premium so long as he or she pays the reduced premium by February 17, 2010, or, if later, thirty days after the date of provision of the expanded notice described above. This provision applies only to assistance eligible individuals who were covered under the plan’s COBRA continuation coverage for the period immediately preceding their transition periods.
Refunds and Credits for Retroactive Premium Assistance Eligibility
The Act provides that any assistance eligible individual who pays the full premium amount for any period of coverage during the transition period must receive a refund or credit of the amount paid in excess of the reduced COBRA premium assistance payment in a manner similar to the refund and credit procedures provided under ARRA.