COBRA Subsidy Extended, Plus Technical Tweaks

On March 2, 2010, President Obama signed the Temporary Extension Act of 2010 (the “Act”), which among other things extended COBRA premium subsidy eligibility for another month—i.e., through March 31, 2010.

As we reported in prior advisories and a prior teleconference broadcast, the American Recovery and Reinvestment Act of 2009 provided new rules and COBRA premium assistance for employees (and their families) whose employment was involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009. The Dec. 31, 2009, deadline was extended to Feb. 28, 2010, at the start of 2010 (and in addition, the nine months of potential subsidy was increased to 15 months). (Please see our Jan. 6, 2010, advisory). 

The new Act’s latest extension now provides the COBRA premium assistance to employees (and their families) whose employment is involuntarily terminated through March 31, 2010. (The maximum subsidy period remains at 15 months.)

Reduction of hours, followed by an involuntary termination of employment

The Act made some additional technical changes. One key change provides that employees who experience a COBRA event as a result of a reduction of hours, followed by an involuntary termination of employment on or after the Act’s effective date, can treat the subsequent involuntary termination of employment as a new COBRA event. The new COBRA event entitles them to another COBRA election and the COBRA premium subsidy.

Prior to this change, an employee who lost health benefits because of a reduction in hours had a right to elect COBRA, but not a right to the premium subsidy (unless the reduction in hours effectively constituted an involuntary termination of employment). Employees in this position may have chosen not to elect COBRA, given the cost of the COBRA premiums, or may have elected COBRA and then dropped coverage (perhaps, again, due to cost).

Now, if an individual in that situation incurs an involuntary termination of employment on or after March 2, 2010, that individual has a new COBRA election right, this time as an “assistance eligible individual,” which makes him or her eligible for the COBRA premium assistance. Even though the individual has another COBRA election, his or her COBRA period continues to be measured from the date of the reduction in hours (not the involuntary termination of employment).

Related noticed requirements

Administrators of health plans must provide notices to individuals who have a COBRA event as a result of a reduction in hours, and then experience an involuntary termination of employment on or after March 2, 2010. The notice must be delivered within the 60-day period following the involuntary termination of employment.

More to come?

At this time Congress is also considering a lengthier extension to the COBRA subsidy rules, which would cover involuntary terminations of employment through 2010. Employers and health plan administrators should stay tuned.