COBRA Premium Subsidy Extension
by Nancy K. Campbell and Greg R. Gautam
On March 6, 2009, Snell & Wilmer published an Employee Benefits Update explaining the new COBRA premium subsidy. As explained in that Update, the American Recovery and Reinvestment Act of 2009 (“ARRA”) provided for a 65% subsidy of COBRA premiums. The premium subsidy under ARRA:
- was available for employees (and their families) who lost group health plan coverage as a result of an involuntary termination of employment that occurred on or after September 1, 2008 and on or before December 31, 2009 (the “eligibility period”);
- applied to periods of coverage beginning on or after February 17, 2009 (i.e., March 1, 2009 for group health plans with a monthly coverage period); and
- was available for a maximum period of 9 months (the “subsidy period”).
For many individuals who were eligible for the premium subsidy starting on March 1, 2009, the subsidy period ended on November 30, 2009, which was the last day of the ninth month of coverage.
Extension of Eligibility Period and Subsidy Period
On December 19, 2009, President Obama signed the Department of Defense Appropriations Act, 2010 (“DODAA”) which extends the COBRA premium subsidy in two ways. First, it extends the eligibility period for two months until February 28, 2010. Second, it extends the maximum subsidy period to 15 months, from 9 months. DODAA also clarifies that only the involuntary termination from employment, and not the loss of coverage, must occur on or before February 28, 2010 to be eligible for the subsidy. DODAA does not change the amount of the subsidy, which remains at 65%.
Extension of Grace Period
DODAA also provides that individuals who had reached the end of the subsidy period before the legislation extended it to 15 months will have an extension of their grace period to pay the reduced premium. To continue their coverage they must pay 35% percent of COBRA premium costs by February 17, 2010, or, if later, 30 days after notice of the extension is provided by their plan administrator. Individuals who lost their subsidy and paid 100% of the COBRA premium in December 2009 are entitled to a refund and should contact their plan administrator or employer sponsoring the plan to discuss a credit for future months of coverage or a reimbursement of the overpayment.
ARRA, as amended by DODAA, mandates the provision of certain notices. As part of the COBRA election notice, plan administrators must provide information about the premium subsidy to all individuals who have COBRA qualifying events from September 1, 2008 through February 28, 2010.
Plan administrators must also provide notice about the changes made to the premium subsidy provisions of ARRA by DODAA to individuals who have already been provided a COBRA election notice, unless the election notice included the updated premium subsidy information.
- Individuals who are “assistance eligible individuals” must be provided this notice by February 17, 2010. Although plan administrators have until February 17, 2010 to send this notice, they may want to do so by January 18, 2010 in order to keep the extended grace period (described above) as short as possible;
- 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 COBRA continuation coverage notices; and
- Individuals who are in a “transition period” (i.e., a period that begins immediately after the end of the 9 months of premium reduction in effect under ARRA before the amendments made by DODAA, as long as those 9 months ended before December 19, 2009 and the premium reduction provisions of DODAA would apply due to the extension from 9 to 15 months) must be provided this notice within 60 days of the first day of the transition period. For the many individuals whose subsidy period ended on November 30, 2009, the “transition period” began on December 1, 2009, meaning this notice must be provided by January 29, 2010. Although plan administrators may have until January 29, 2010 to send this notice, they may want to do so by January 18, 2010 in order to keep the extended grace period (described above) as short as possible.
The Department of Labor has informally indicated that it intends to issue new model notices incorporating information about the COBRA premium subsidy extension. Once published, those notices should be available at http://www.dol.gov/ebsa/cobra.html.
If you have questions about the subject of this article or would like more information, you may contact the authors or another Snell & Wilmer attorney at 602.382.6000.
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