NEW! COBRA Subsidy Extended – Employers Have Additional Notice Requirements under New Amendments
by Kelley E. Kaufman and Andrew L. Levy
On December 21, 2009, President Obama signed into law the Department of Defense Appropriations Act, 2010 (H.R. 3326). The Act included several amendments to the COBRA subsidy provisions of the American Reinvestment Act of 2009 (“ARRA”). The amendments not only extend the period in which former employees may become eligible for the COBRA subsidy, but they also extend the time period for which eligible employees may receive the subsidized COBRA coverage. Employers need to be aware of these extended time periods, as well as their additional notice obligations under the amendments.
BACKGROUND
ARRA provided a 65% government subsidy for COBRA continuation coverage to eligible employees who are involuntarily terminated (“Assistance Eligible Individuals”) and their covered dependents. Employers are responsible for paying the 65% subsidy up front, while the eligible individual pays the remaining 35%. In return, the employer may then receive a payroll tax credit in proportion to the subsidized amount. Employers are required to provide information on the availability of this premium assistance in their COBRA Notices.
WHAT EMPLOYERS NEED TO KNOW
The new law makes the following amendments to the COBRA subsidy provisions:
• Extends the time period during which employees may become eligible for the COBRA subsidy from December 31, 2009, to February 28, 2010.
o Thus, an individual who experiences a qualifying event related to the involuntary termination of employment between September 1, 2008, and February 28, 2010, now may be eligible for the COBRA premium assistance.
• Extends the maximum duration of premium assistance by 6 months.
o Eligible Employees may now receive the COBRA subsidy for up to 15 months.
o As discussed below, those Assistance Eligible Individuals whose COBRA premium expired at the end of the original 9-month period may take advantage of the subsidy for an additional 6 months.
• Provides coverage for Assistance Eligible Individuals during their “Transition Period.”
o A “Transition Period” essentially encompasses the lapse between the expiration of an Assistance Eligible Individual's original 9-month premium assistance and the enactment of these amendments, which allow for an additional 6 months' premium assistance.
o This Transition Period applies, regardless of the Assistance Eligible Individual’s failure to pay their COBRA premium during that time period.
• Permits a refund or credit for Assistance Eligible Individuals who overpaid.
o The amendments provide for the refund or credit of premium payments to those Assistance Eligible Individuals who paid their full COBRA premium during their Transition Period in order to maintain coverage after the end of the original 9-month premium assistance.
o The employer may provide the individual with a refund or may apply the overpayment against the individual's future premiums.
• Allows Assistance Eligible Individuals the opportunity to make retroactive premium payments in order to maintain COBRA continuation coverage.
o Under the amendments, an Assistance Eligible Individual will be treated as having timely paid their COBRA premium during his or her Transition Period provided that:
The individual had COBRA continuation coverage related to that premium immediately preceding the Transition Period; and
The individual pays the subsidized amount of the premium either 60 days after enactment of the amendments (February 18, 2010), or 30 days after being provided updated notice, whichever is later.
o It is important to note that employers must provide updated notice to these individuals, as set forth below.
• Requires employers to provide additional notice to the following Assistance Eligible Individuals:
o Those who were eligible or who experienced a COBRA qualifying event on or after October 31, 2009.
Notice including information about these amendments must be provided within 60 days of enactment of the amendments – February 18, 2010.
If the COBRA qualifying event occurs after the enactment of the amendments (December 21, 2009), notice of COBRA rights and the eligibility of COBRA premium assistance should be provided as normal.
o Those who lost coverage because they did not timely pay their premium during their Transition Period
Notice must be provided within 60 days of the individual’s Transition Period, and must include information about these amendments, as well as the ability to make retroactive premium payments in order to maintain COBRA continuation coverage.
o Those who paid their premium without regard to the available premium assistance.
Notice must be provided within 60 days of the individual’s Transition Period, and must include information about these amendments, as well as the ability to make retroactive premium payments in order to maintain COBRA continuation coverage.
• The amendments further clarify that eligibility and notice requirements are based on the timing of the COBRA qualifying event related to an involuntary termination, not the individual’s eligibility to elect COBRA continuation coverage. Thus, under the amendments, Assistance Eligible Individuals are those who experience the COBRA qualifying event on or before February 28, 2010, even if they are not eligible for COBRA until after the deadline.
UPDATE NOTICES AND IN-HOUSE PROCEDURES IMMEDIATELY
It is extremely important that employers take the time now to update their COBRA subsidy notices, policies, and procedures to reflect these amendments.
Subsidy notices must reflect the new eligibility deadline, the extended time period during which premium assistance is available, and must include an explanation of Assistance Eligible Individuals' right to make retroactive payments in order to maintain COBRA continuation coverage. Further, employers must take the time to identify all individuals who are entitled to receive these updated notices and distribute them accordingly. Updated notices must be sent no later than February 18, 2010.
Employers also should take the time to review their related policies and procedures to ensure that they reflect the updated provisions. Employers may wish to review any situations in which employees were deemed ineligible for the COBRA subsidy due to the original December 31, 2009, expiration date. Remember: individuals' eligibility depends on whether they (or their dependents) experience a COBRA qualifying event related to involuntary termination on or before February 28, 2010 – regardless of whether they are eligible for COBRA on or before that date.
©2009 McNees Wallace & Nurick LLC
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