New guidance from the Employee Benefits Security Administration regarding the COBRA subsidy extension includes revised employee notices, important information about participant eligibility and the mechanics for recovery of the employer-paid premiums.
The COBRA subsidy, which was established by the American Recovery and Reinvestment Act of 2009, enables “assistance eligible individuals” (AEIs) to pay only 35% of their COBRA premiums for health coverage continuation, with the remaining 65% being paid by the coverage provider subject to reimbursement through a tax credit. AEIs were initially limited to employees (and their beneficiaries) who became eligible for COBRA (or comparable state law, e.g., Massachusetts’ “mini-COBRA”) to an involuntary separation from service between September 1, 2008 and December 31, 2009. The Department of Defense Appropriations Act, 2010 (2010 DODA) extended this period to include involuntary service separations through February 28, 2010. The 2010 DODA also increased from 9 months to 15 months the maximum period during which an AEI could receive the subsidy.
Recently issued guidance clarifies that an AEI terminated before March 1, 2010 may be eligible for the subsidy even if the AEI’s COBRA coverage does not begin until after February 28, 2010. The EBSA guidance (as supplemented by recent IRS guidance) provides important additional information including:
- AEIs who failed to timely pay their 35% share of premiums through the end of their original subsidy period are not eligible for the extension.
- AEIs who timely paid their premium share through the end of the original subsidy period will have additional time to pay the applicable premium for the subsidy extension period; that is, until the latest of (i) February 17, 2010, (ii) 30 days after notice of the extension is provided by the plan administrator or (iii) the end of the plan’s payment grace period.
- A model notice designed to inform individuals of their rights with respect to the COBRA subsidy, including the subsidy extension, as well as a notice for AEIs who are already receiving the COBRA subsidy and may be affected by the extension, e.g., individuals in the “transition period” from the 10th through the 15th of their COBRA coverage.
NOTE: Some individuals may be entitled to multiple notices.
- Employers and other coverage providers generally may not recover their subsidy payment prior to the calendar quarter in which affected AEIs pay their 35% premium share, even if the employer paid the subsidy in an earlier quarter.