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COBRA Subsidy Period Extended

January 4, 2010
Employee Benefits Advisory

The Department of Defense Appropriations Act of 2010 (the Act), signed into law by the President on December 19, 2009, extends the COBRA subsidy. The subsidy was initially passed as part of the American Recovery and Reinvestment Act (ARRA) in February of 2009 and provides that individuals who were involuntarily terminated from employment between September 1, 2008 and December 31, 2009 may continue group health care coverage under COBRA by paying only 35 percent of the COBRA premium (with the remaining 65 percent reimbursed to the plan sponsor through a tax credit). The Act makes several important changes to the COBRA subsidy, all of which are effective immediately.

Extension of Eligibility for COBRA Premium Subsidy

The COBRA premium subsidy will be available for individuals who are involuntarily terminated from employment and their eligible dependents (called "assistance eligible individuals") through February 28, 2010.

Extension of Maximum Subsidy Period to 15 Months

The Act increases the subsidy period from 9 months to 15 months.

Retroactive COBRA Elections

The Act permits individuals to elect to pay COBRA premiums (as reduced by the subsidy) retroactively, and maintain their COBRA coverage. Therefore, if an assistance eligible individual exhausted the 9 month COBRA subsidy period and dropped COBRA coverage, they may retroactively elect COBRA coverage for up to an additional 6 months, and receive the subsidy for that time.

Refunds or Credits for COBRA Premiums

The Act permits assistance eligible individuals who exhausted the 9 month COBRA subsidy period and continued to maintain COBRA coverage (and paid 102% of the premium) to receive a refund or credit for the 65% of the COBRA premium payments that were paid, for up to 6 months following the original 9 month COBRA subsidy period.

New Notice Requirements

Group health plans are required to provide notice of the extension of premium assistance to the following individuals:

  • Individuals who are "assistance eligible individuals" must be provided this notice by February 17, 2010;
  • Individuals who experience a termination of employment on or after October 31, 2009 and lose health coverage must be provided this notice within the normal timeframes for providing continuation coverage notices; and
  • Individuals who are in a "transition period" (a period that begins immediately after the end of the nine months of premium reduction in effect under ARRA before the amendments made by the Act, as long as those nine months ended before December 19, 2009 and the premium reduction provisions of the Act would apply due to the extension from nine to 15 months) must be provided this notice within 60 days of the first day of the transition period.

If you have any questions or need assistance preparing the required notices, please contact any member of our Employee Benefits Team.

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