With ARRA set to expire on December 31, 2009, lingering high unemployment rates prompted Congress to extend the subsidy.
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Congress Extends COBRA Subsidy
By Christopher W. Olmsted
Though preoccupied with national healthcare legislation, Congress passed legislation on December 19th extending the COBRA subsidy eligibility period and coverage period. The extension came as part of the Fiscal Year 2010 Defense Appropriations Act.
Original ARRA COBRA Subsidy
In early 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (“ARRA”). In a nutshell, ARRA entitles employees involuntarily terminated between September 1, 2008 and December 31, 2009 to continue health care coverage through COBRA by paying only 35 percent of their premiums for up to nine months. The remaining 65% is paid by employers, who may deduct the cost from federal payroll taxes. Employers must immediately comply with the law by providing notice to eligible individuals, collecting 35% of the premiums from the employees, paying 65%, and filing quarterly tax returns claiming a credit for the 65% subsidized amount. (For smaller employers some insurers paid the premium and collected the refund.)
With ARRA set to expire on December 31, 2009, lingering high unemployment rates prompted Congress to extend the subsidy.
Changes Regarding COBRA Continuation Coverage
Under The 2010 DOD Act
The 2010 DOD Act extends the COBRA premium reduction eligibility period for two months until February 28, 2010. This means that employees who are terminated on or before February 28, 2010 may be eligible for the subsidy.
Additionally, the legislation increases the maximum period for receiving the subsidy for an additional six months (from nine to 15 months).
The legislation also helps those who already exhausted their subsidy period under the original legislation. In a DOL press release, Phyllis C. Borzi, Assistant Secretary of the Employee Benefits Security Administration (EBSA) summarized the new provision: “Individuals who had reached the end of the reduced premium period before the legislation extended it to 15 months will have additional time to pay the reduced premiums related to the extension. To continue their coverage they must pay the 35% of premium costs by 60 days after date of enactment or, if later, 30 days after notice of the extension is provided by their plan administrator.”
Individuals who lost their subsidy and paid the full 100 percent premium in December 2009 should be told to contact their plan administrator or employer sponsoring the plan to discuss a credit for future months of coverage or a reimbursement of the overpayment.
New Notice Requirements
In addition to the notice requirements already mandated under ARRA, the 2010 DOD Act requires employers to provide notice of the new rights.
The employer or its group health plan administrator must give notice to any individual who was already eligible for the subsidy as of October 31, 2009. The notice must be given within 60 days of enactment (i.e. by February 21, 2010). The notice must also be given within 30 days to any individual who becomes eligible for the subsidy (i.e. terminated) on or after October 31, 2009. The new notice must provide information regarding the 2010 DOD Act amendments.
The Act also requires notice to individuals who either dropped COBRA or paid the full premium for it when their nine-month subsidy ended. The notice explains that they have two options: to either reinstate their coverage retroactively at the 35% subsidized rate, or to receive a credit or refund.
The DOL has published a Model Notice which can be downloaded from the DOL's website by following this link.
Additional Resources:
DOL COBRA Fact Sheet
DOL Model Notices For Employer Use (pre DOD Act)
DOL Press Release
Read the 2010 DOL Legislation
Barker Olmsted & Barnier APLC Articles Regarding COBRA subsidy:
http://www.barkerolmsted.com/news/legal-updates/newsletter0106.php
http://www.barkerolmsted.com/news/legal-updates/newsletter0112.php
Download entire January 2010 Legal Update in PDF format.
This article is intended as a brief overview of the law and are not intended to substitute as legal advice. Any questions or concerns regarding any statute or case law should be addressed to a licensed attorney. Copyright © 2010 by Barker Olmsted & Barnier, APLC. San Diego, California. All rights reserved.
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