Dec. 27, 2009 New Law Extends COBRA Subsidy

Last week, President Obama signed a new law that extends the eligibility period for the federal COBRA premium subsidy originally put in place under the American Recovery and Reinvestment Act of 2009.  Click here to see a copy of the new law.  The law takes effect immediately and includes new COBRA subsidy notice requirements.

COBRA Subsidy Extension 

The new law extends the eligibility period for the federal COBRA subsidy for an additional two months, through February 28, 2010.  The subsidy was originally set to expire on December 31, 2009.  This means that employees (and their dependents) who were otherwise eligible for federal COBRA and who were involuntarily terminated between September 1, 2008 and February 28, 2010 will be eligible for the subsidy.  The law also extends the maximum period an eligible individual may receive the COBRA subsidy from 9 to 15 months.  Thus, eligible individuals whose COBRA subsidy periods had previously expired or who are presently receiving the COBRA subsidy will be eligible for the extension.

"Transition" individuals whose COBRA coverage ended because they stopped paying their premium at the time the original subsidy expired must be given the opportunity to retroactively pay COBRA premiums at the subsidized rate, up to a total of 15 months.  To continue their coverage, they must pay the COBRA premium cost at the 35% subsidized rate by the later of February 19, 2010 or 30 days after they receive notice of the subsidy extension.  "Overpayment" individuals who maintained COBRA coverage after expiration of the original subsidy period must be reimbursed for the difference between the amount paid and the subsidized COBRA amount via either a refund or credit toward future COBRA premium payments. 

New COBRA Notices

By February 17, 2010, "transition" and "overpayment" individuals must receive notice that they are eligible either to reinstate their coverage retroactively by paying the subsidized premiums or to receive a credit or refund for premiums paid.  Also by February 17, 2010, notice of the COBRA subsidy extension must be provided to anyone who was an "assistance eligible individual" on or after October 31, 2009, or who was terminated from employment on or after October 31, 2009.  Finally, for all qualifying events that occur after the law's December 19, 2009 passage, COBRA notices must include information about the subsidy extension.            

What This Means

To comply with the new COBRA subsidy extension obligations, covered employers should compile a list of employees and their eligible dependents who must receive notice of the COBRA subsidy extension.  Employers acting as plan administrators must also prepare or obtain COBRA subsidy extension notices and make sure the notices are delivered to the appropriate employees and their eligible dependents.  Finally, they must ensure that COBRA notices for all newly terminated employees (those terminated after December 19, 2009) contain the correct information about the new COBRA subsidy extension.

This E-Update was authored by Brenda Kasper and Lisa Frank.  For more information, please contact Ms. Kasper, Ms. Frank or any other Paul, Plevin attorney by calling (619) 237-5200.