Cobra Subsidy Extension Requires Employers to Notify Certain Current and Future Cobra Participants

1/5/2010

On December 21, 2009 President Obama signed into law an extension and expansion of the COBRA premium subsidy law that otherwise would have expired on December 31. The new law, which became effective immediately, extends the eligibility period for the premium reduction for an additional two months (through February 28, 2010) and increases the maximum period for receiving the subsidy by an additional six months (from nine to 15 months). Employers must notify certain current and future COBRA beneficiaries within a tight time frame.

Earlier in 2009, the American Recovery and Reinvestment Act (ARRA) of 2009 was enacted under which "assistance-eligible individuals" (AEIs) were initially entitled to receive a 65 percent subsidy for continuation coverage premiums for up to nine months. Under the original law, an AEI is any COBRA qualified beneficiary who elects COBRA coverage and: (1) has a loss of group health coverage as a result of an involuntary termination of employment (other than gross misconduct); and (2) has a qualifying event between September 1, 2008, and December 31, 2009, is otherwise eligible for COBRA coverage during that period and elects that coverage. The law included various new administrative and notice requirements for employers, many of which had to be met within a short period after ARRA was enacted. Key provisions of the COBRA subsidy extension include:

• The amount of time an AEI can receive a subsidy increases from nine to 15 months.

• The subsidy eligibility period is expanded to include the period that begins with September 1, 2008, and ends with February 28, 2010 (formerly December 31, 2009). The new law does not require that COBRA coverage begin by the end of the period (February 28). Instead, the person is an AEI as long as the COBRA qualifying event (involuntary termination of employment) occurs by February 28, 2010, and is entitled to COBRA coverage as a result of that event.

• For any AEI for whom the premium subsidy now applies due to the extension, there is a transition period consisting of any period of coverage that begins before the extension's enactment date. Any period during which the applicable premium had been paid is to be treated as a period of coverage, irrespective of any failure to timely pay the applicable premium for such period.

• Plan administrators must provide a notice on extension rights to AEIs who did not timely pay the COBRA premium for any period of coverage during their transition period or paid the full (non-subsidized) premium without regard to the subsidy rules. The notice must be provided within the first 60 days of their transition period, and must include information on the ability to make retroactive premium payments as a result of the transition period.

• In the case of any premium for a period of coverage during an AEI's transition period, an AEI shall be treated for purposes of any COBRA provision as having timely paid the premium amount if he or she: (a) was covered under the COBRA coverage to which such premium relates for the period of coverage immediately preceding the transition period; and (b) pays, not later than 60 days after the extension enactment date (or, if later, 30 days after the new notices are provided) the amount of the subsidized premium.

• In the case of an AEI who, during his or her transition period, paid the full premium amount for such coverage without regard to the subsidy amount, ARRA's rules allowing for that AEI to be reimbursed for the excess premiums will apply.

• Plan administrators must provide notices of the new extension rights to individuals who became AEIs on or after October 31, 2009, or experience a qualifying event (consisting of termination of employment) relating to COBRA coverage on or after that date. The notice must be provided within 60 days after the extension's enactment date or, in the case of a qualifying event occurring after the enactment date, consistent with the timing of COBRA notices.

The legislation requires employers to send a special notice that describes the 15-month subsidy to all beneficiaries who are eligible for a premium subsidy who are on COBRA beginning on or after November 1, 2009. Employers and their COBRA administrators must review letters already sent out to beneficiaries asking for full premium payments and in the case of overpayments, decide whether to offset future COBRA premium payments by the amount of the overpayments or issue refund checks. In other cases involving beneficiaries whose eligibility for the subsidy ended in November and who didn’t pay the full unsubsidized December premium, employers must review whether or not the beneficiaries are eligible for retroactive coverage if they pay the 35 percent share within 60 days of the bill's enactment, or, if later, 30 days later after the former employer sends notice that describes the new 15-month premium subsidy. That will require employers and COBRA administrators to identify beneficiaries whose eligibility for the subsidy ended, send them the required notice and, assuming they pay the required premium, retroactively restore their COBRA coverage. Some employers and plan administrators may ease this complication by expediting notice to participants about the subsidy extension and sending out a revised billing statement.

If you have questions about the COBRA subsidy extension, or any other aspect of your company's employment obligations, please contact Stacey A. DeKalb of the Lommen Abdo Employment Law Practice Group at 612-336-9310 or stacey@lommen.com.