New Law Extends COBRA Premium Subsidy and Eligibility Periods

Congress has extended the maximum COBRA premium subsidy period from nine to 15 months and extended the eligibility deadline from Dec. 31, 2009, to Feb. 28, 2010. These changes were established under the Department of Defense Appropriations Act, 2010 (“2010 Act”).

As discussed in more detail in this advisory, the 2010 Act includes transition relief for assistance-eligible individuals and imposes new notification requirements for health plan administrators.

COBRA subsidy under ARRA

As we reported in a February 2009 advisory, the American Recovery and Reinvestment Act of 2009 (ARRA) enabled certain involuntarily terminated employees to obtain COBRA coverage (for themselves and their beneficiaries) by paying only 35 percent of the otherwise applicable COBRA premium. The coverage provider paid the remaining 65 percent and could then obtain reimbursement through a tax credit. The 2010 Act did not change the subsidy amount or the fundamental mechanics for facilitating the subsidy.

Eligibility and premium subsidy extension periods

Under the 2010 Act, individuals will be eligible for up to 15 months of subsidized premiums if they qualify for COBRA continuation coverage because of an involuntary termination of employment for any reason (except gross misconduct) by Feb. 28, 2010. The 2010 Act clarifies that qualifying individuals need only experience an involuntary termination of employment by that date, and not necessarily become eligible to begin COBRA coverage during that period. In other words, eligibility for the premium subsidy is based on the date of the qualifying termination of employment, not the date the individual would begin COBRA coverage. This effectively overturns recent guidance issued by the U.S. Department of Labor (DOL).

Making retroactive payments

Assistance-eligible individuals who reached the end of the original nine-month COBRA subsidy premium period before Dec. 19, 2009, may now continue their COBRA coverage by paying 35 percent of the COBRA premiums for the “transition period” by Feb. 17, 2010, or, if later, 30 days after their plan administrator provides notice of the extension. The transition period begins immediately after the end of the original nine-month period in effect under ARRA, as long as that nine-month period ended before Dec. 19, 2009.

Reimbursement for previous payments

For assistance-eligible individuals who reached the end of the original nine-month COBRA subsidy premium period before Dec. 19, 2009, and paid 100 percent of the premium, plan administrators must reimburse the overpayment amount or provide a credit toward future months of COBRA coverage.

Additional notice requirements

Plan administrators must provide additional notice regarding the 2010 Act changes to anyone who was an assistance-eligible individual at any time on or after Oct. 31, 2009, or terminated employment on or after Oct. 31, 2009. Plan administrators must provide this additional notification no later than Feb.17, 2010 (that is, within 60 days after the enactment date of the 2010 Act), or, in the case of a qualifying event occurring after Dec. 19, 2009, consistent with COBRA’s normal election notice timing requirements.

Plan administrators must also provide additional notification to any assistance-eligible individual who (1) had COBRA coverage for the original nine-month subsidy period prior to Dec. 19, 2009, and (2) did not timely pay the premium at any time during the transition period. The plan administrator must provide the notice within the first 60 days of the assistance-eligible individual’s transition period, and the notice must explain the ability to make retroactive premium payments.

The DOL plans to issue a new set of model notices that incorporate the changes made by the 2010 Act. The DOL has not yet issued the model notices. We will post them here as soon as they are available.* (When issued, the notices will likely be available on the DOL’s Web site.) Plan administrators should be mindful of the Feb. 17, 2010, deadline to update notices. [ *Since the publication of this advisory, the DOL made the model notices available. To access them, click on the above DOL Web site link.]

Oregon extends state continuation coverage

To match the changes under the 2010 Act, Oregon has extended the premium subsidy and eligibility period rules under its state-mandated COBRA-like continuation coverage. The Oregon continuation coverage rules apply to insured group health plans in Oregon that are not subject to COBRA (for example, the insured plan of an employer with fewer than 20 employees). Under Oregon’s new rules, individuals who are involuntarily terminated for any reason (except gross misconduct), between Sept. 1, 2008, and Feb. 28, 2010, will be eligible for a 65 percent premium reduction on state continuation coverage for up to 15 months.

Some states, including Washington, do not have such "mini-COBRA" laws requiring continuation coverage in situations not covered by federal COBRA. California does, but its mini-COBRA rules already permit coverage for up to 36 months, so California, unlike Oregon, did not need revise its rules to take full advantage of the 2010 Act changes. Employers that are not subject to federal COBRA, and that operate in states other than Oregon, Washington or California, should verify the existence and impact of any state mini-COBRA laws.