Employer COBRA Alert: COBRA Premium Subsidy Extended

Businesses and employees alike need to be aware of recent changes to the rules that govern the rights of employees to continue their health insurance coverage when their employment is terminated. On December 19, 2009, President Obama signed the 2010 Department of Defense Appropriations Act (the "DOD Act"), which extends certain temporary changes to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") originally enacted in February, 2009, under the American Recovery and Reinvestment Act ("ARRA").

Under ARRA, employees who are involuntarily terminated between September 1, 2008 and December 31, 2009 became eligible for a special subsidy for a period of up to nine months during which the employee was only required to pay 35% of the cost of COBRA premiums. Employers are responsible for paying the remaining 65%, but were entitled to a refundable payroll tax credit for the amounts paid as part of this COBRA subsidy. For more information on the originally enacted COBRA premium subsidy, please see this article on this website.

The DOD Act makes two significant changes to the COBRA subsidy rules:

• Expands the COBRA subsidy period from nine to 15 months; and
• Changes the end date for eligibility for the subsidy from December 31, 2009 to February 28, 2010.

Individuals whose COBRA subsidy period expired prior to the enactment of the DOD Act are eligible to retroactively reinstate their COBRA coverage with the reduced premiums. To retroactively reinstate and continue their coverage they must pay the 35% of their premium costs by the later of (i) February 17, 2010; or (ii) 30 days after the notice of the extension is provided by their plan administrator. The same refund and credit rules under ARRA apply to any assistance-eligible individual whose subsidy expired in November and who has since paid the full COBRA premium. For more information and frequently asked questions regarding the extension of the COBRA premium subsidy, please see the recent FAQ article on this website.

Employers need to make sure that their health plan administrators act promptly and send an updated notice describing the new subsidy rules to all individuals who were assistance-eligible individuals as of October 31, 2009, or who have been terminated from employment on or after October 31, 2009. Additionally, the DOD Act requires that a special notice be sent to those assistance-eligible individuals who either dropped COBRA or paid the full premium for it when their nine-month subsidy ended, explaining that they are now eligible either to reinstate their coverage retroactively at the subsidized rate or to receive a credit or refund if they paid more than the DOD Act would have required.

We are monitoring these developments and we will post updates of new developments. If you have questions about these most recent extension of the COBRA premium subsidy provisions, please contact David Paxton at 540.983.9334, Lindsey Waters at 540.983.9376, Brooke Rosen at 540.983.9445, or any other members of Gentry Locke's Employment Practice Group.