The Department of Defense (DOD) Appropriations Act of 2010 (the “DOD Act”), which was enacted in December 2009, established a new lease on life for the 65% COBRA premium subsidy that was originally authorized in February 2009 as part of the American Recovery and Reinvestment Act (ARRA). The DOD Act added another six months to the maximum period for the COBRA premium subsidy (up to a total of 15 months). The Act also extended the now up-to-15 month COBRA premium subsidy to workers who are involuntarily terminated during the first two months of 2010 (and to the eligible family members of such workers). Prior to the passage of the DOD Act, the subsidy was not available for those who were terminated after 2009.

The DOD Act did not change the payment mechanism for the subsidy. If an eligible individual pays 35% of the otherwise required COBRA premium, the group health plan must treat that individual as having paid the full premium required for continuation coverage. The entity to which premiums are payable — generally, an employer — receives reimbursement for the difference between the full premium and the amount paid by the employee. The reimbursement takes the form of a credit on the employer’s quarterly employment tax return for 65% of the COBRA cost.

The U.S. Department of Labor (DOL) has now spelled out details of the COBRA premium subsidy extension in a Fact Sheet and updated FAQs, available on the DOL website. The guidance includes an explanation of who is eligible for the extended relief, the deadline for terminated workers and their families to pay the 35% of premium cost under the extension, and the extra notice requirements that plan administrators must provide. DOL has also provided updated Model COBRA Notices, which reflect the premium subsidy extension.

Among the topics that the new DOL guidance addresses are the following:

Who is eligible for the subsidy? To be eligible for the COBRA premium subsidy, an individual must be an “assistance eligible individual” (“AEI”). Prior to the DOD Act, an employee must have been involuntarily terminated by December 31, 2009 to qualify as an AEI. Now, an employee involuntarily terminated by February 28, 2010 can be an AEI.

When the subsidy ends. The COBRA premium subsidy period now terminates no later than fifteen (15) months after the first day of the first month in which the premium subsidy provisions became applicable to the individual. (However, the subsidy period still terminates earlier if the AIE becomes eligible for other group health coverage or for Medicare, or ceases to be eligible for COBRA continuation coverage).

How to benefit from the extended subsidy period. DOL provides guidance to AEIs who are in several different situations:

(1) AEIs currently receiving the COBRA premium subsidy.

These AEIs do not have to do anything to qualify for the six additional months of subsidy. They will automatically be eligible to pay reduced premiums for up to six more months, for a total of 15 months, as long as they remain eligible for the premium subsidy program.

(2) AEIs whose eligibility for the COBRA subsidy expired under pre-DOD Act law, and who did not continue making COBRA premium payments (e.g., they could not afford the unsubsidized cost).

To become eligible for continuing COBRA coverage, and for the extended subsidy period, the AEI must pay 35% of the full premium for the lapsed periods of coverage by the later of (a) February 17, 2010, (b) 30 days after notice of the extension is provided by the plan administrator or employer, or (c) the grace period that applies for premium payments under the COBRA continuation coverage rules, generally.

(3) AEIs whose eligibility for the COBRA subsidy expired under pre-DOD Act law, and who had already paid the entire (unsubsidized) COBRA premium after the expiration.

These AEIs are directed to contact their plan administrator or the employer/plan sponsor to discuss a credit for future months of coverage or a reimbursement of the overpayment.

Revised notice requirements for plan administrators. Plans subject to federal COBRA provisions must provide a General Notice to all qualified beneficiaries, not just AEIs, who experienced a qualifying event at any time from September 1, 2008 through February 28, 2010, and who have not yet been provided an election notice.

AEIs who experience any COBRA qualifying event after December 19, 2009 must be provided the General Notice, updated to reflect the premium subsidy extension, within the normal timeframes for receiving a COBRA election notice. The updated model General Notice includes information on the premium subsidy, as well as information required in a COBRA election notice.

Plan administrators also must provide notice to the following individuals who were already provided with a COBRA election notice but did not receive information about the COBRA premium subsidy extension:

• Generally, individuals who were AEIs as of October 31, 2009 and individuals who experienced a termination of employment on or after October 31, 2009 and lost health coverage must be provided notice of the premium subsidy extension no later than February 17, 2010.

• Individuals who are in a “transition period” must be provided notice of the extension of the COBRA subsidy rules within 60 days of the first day of the transition period. An individual's transition period begins immediately after the end of the nine months of premium subsidy in effect under ARRA before the amendments made by the DOD Act, as long as the premium subsidy provisions of the DOD Act would apply due to the extension from nine to 15 months, and the individual otherwise remains eligible for the premium reduction.

If you have any questions on the extension of the COBRA premium subsidy, please contact Jeff Perlmuter at (216) 515-1654.

_{This document is intended to provide general information about legal developments, not legal advice.}

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