Dec 22, 2009

COBRA Subsidy Extended

On December 19, 2009, President Obama signed the Department of Defense Appropriations Act, 2010 (H.R. 3326), containing a temporary extension of the COBRA premium assistance provisions enacted as part of the American Recovery and Reinvestment Act of 2009 (“ARRA”) (the “COBRA Subsidy”). Regarding the COBRA Subsidy, under ARRA, individuals who are involuntarily terminated between September 1, 2008 and December 31, 2009 are eligible to receive a 65 percent subsidy toward the cost of their COBRA health care premium for up to 9 months, and employers receive a credit against payroll taxes for the cost of the COBRA Subsidy provided to these Assistance Eligible Individuals (“AEIs”). With the December 31, 2009 eligibility cut-off date rapidly approaching, Congress and the President acted quickly to extend the COBRA Subsidy.

Eligibility and Subsidy Periods Extended

The COBRA Subsidy extension provides subsidized COBRA coverage to individuals who are involuntarily terminated through February 28, 2010. In addition, the COBRA Subsidy extension provides the 65 percent premium reduction for an additional 6 months, for a total of 15 months of subsidized COBRA coverage. Thus, under the COBRA Subsidy extension, if an individual became eligible for the COBRA Subsidy on August 1, 2009, his COBRA Subsidy benefits will be extended to October 31, 2010, rather than ending on April 30, 2010, which would have occurred had no extension been implemented.

Retroactive Coverage Included

The COBRA Subsidy extension gives AEIs the opportunity to receive retroactive coverage if they stopped paying premiums after their COBRA Subsidy benefits were exhausted. That is, if an individual stopped paying for COBRA coverage at the end of the original 9-month COBRA Subsidy period, he may reinstate coverage retroactively to when he discontinued COBRA premium payments. In addition, if an individual exhausted his COBRA Subsidy benefits and continued COBRA coverage by paying the full premium, he may receive a refund or premium credits from his employer for the additional amounts he paid.

Employer Notification Required

By February 17, 2010 (i.e., within 60 days of the enactment of the COBRA Subsidy extension), employers are required to notify individuals who became AEIs on or after October 31, 2009 that they may continue to pay for their COBRA coverage at the subsidized rate for a total of 15 months, and that they may reinstate their COBRA coverage if they discontinued payments for COBRA coverage after exhausting the COBRA Subsidy benefits. The Department of Labor is expected to issue model notices to assist employers with these notification requirements.

Stay tuned for additional SGR Client Alerts and webinars on the COBRA Subsidy extension. For more information on the COBRA Subsidy extension, contact your SGR Executive Compensation and Employee Benefits counsel.

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