COBRA Subsidy Extension for 2010
The COBRA subsidy enacted on February 17, 2009, as part of the American Recovery and Reinvestment Act ("ARRA"), has now been amended by the Defense Appropriations Act, 2010 ("2010 Act") of December 19, 2009 to extend the Federal subsidy of COBRA group health plan premiums. Under the terms of the subsidy, assistance eligible individuals ("AEIs") pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the employer who sponsors the health plan by a credit on the next Federal withholding tax deposit. An "AEI" is an employee or dependent that, as the result of an involuntary termination, becomes eligible for and timely elects COBRA continuation coverage.
The subsidy for COBRA coverage provided under the ARRA has been extended in two important ways:
- The subsidy is now available to an AEI who loses coverage under a group health plan due to an employee's involuntary termination of employment between September 1, 2008 and February 28, 2010. The original subsidy only applied if COBRA coverage began by December 31, 2009. Most employees who were involuntarily terminated in December 2009 did not become eligible for COBRA until January 1, 2010, so the extension helps ensure the subsidy is applicable to employees terminated near year-end.
- The length of the subsidy period is extended from 9 months to 15 months for AEIs. Accordingly, AEIs who already have received nine months of subsidy are entitled to an additional six months of subsidy to run from the end of the original nine month subsidy period (but not beyond the end of the COBRA coverage period).
The 2010 Act requires that health plan sponsors provide notice of the extension to employees who might be affected. Plan sponsors need to take these steps:
- Notice to Those Now on COBRA. Provide notice that the length of the subsidy has been extended from 9 to 15 months to any individual who was an AEI on COBRA as of October 31, 2009, and to anyone who is still in the COBRA election period due to any termination of employment on or after October 31, 2009. The notice must be provided no later than February 17, 2010.
- Notice of Refund Date. If the original nine month subsidy period ended before December 19, 2009, and an AEI paid a full premium for a period after the nine month subsidy period ended, notice must be given that the individual is entitled to either a reimbursement of the excess paid or a credit towards future premiums. This notice must be given within 60 days after the original nine month subsidy period ended, which could be as early as January 29, 2010, for an AEI whose nine month subsidy period began on March 1, 2009.
- A Change to Reinstate Dropped COBRA. If the original nine month subsidy period ended before December 19, 2009, and an AEI has dropped coverage following expiration of the original subsidy, that individual has until the later of 30 days after a notice is given, or February 17, 2010, to elect to continue COBRA coverage retroactive to the date it was dropped by paying the subsidized premium due for that retroactive period. The notice to explain this right must be given within 60 days after the original nine month subsidy period ended -- which could be as early as January 29, 2010, for an AEI whose nine month subsidy period began on March 1, 2009.
- Future COBRA Notices Need Edit. For any involuntary termination after December 19, 2009, the employer must provide an updated notice of the subsidy which describes the new February 28, 2010 cutoff date and 15-month duration.
New, updated sample forms have now been issued by the Department of Labor. Two forms were provided. One for new COBRA notices going out, and the second to notify all those who are already using the subsidy or who received a notice without the new rules (those described in 1 through 3 above). These new forms can be accessed here.
For assistance with these compliance obligations, please contact any of the members of the Frost Brown Todd Employee Benefits Group.