On February 17, 2009, President Obama signed the American Economic Recovery and Reinvestment Plan into law which included significant changes to the group health plan coverage continuation provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), including a COBRA premium subsidy. On December 19, 2009, President Obama signed into law the Department of Defense Appropriations Act of 2010, which contains an extension to the COBRA subsidy premium. This Bulletin will highlight the changes to COBRA affected by this extension.
Eligibility Extension
The original COBRA subsidy applied only to Assistance Eligible Individuals (“AEIs”) who were defined as individuals who experienced an involuntary termination of employment during the period from September 1, 2008 through December 31, 2009. Under the new law, subsidy coverage is extended to AEIs who suffer a loss of group health coverage due to involuntary termination through February 28, 2010.
Subsidy Extension
The original COBRA subsidy lasted only nine months. Under the extension, the COBRA subsidy period will increase from nine months to 15 months. Accordingly, AEIs who have already received nine months of the subsidy will be eligible for an additional six months of premium subsidy, for a total subsidy period of 15 months.
Retroactive COBRA Elections
Group health plans are required to permit an AEI whose COBRA coverage lapsed upon the expiration of the nine-month subsidy period to retroactively elect COBRA coverage for an additional six month period. An AEI may retroactively elect COBRA coverage by paying the subsidized premium amount (35% of the COBRA premium) for the lapsed time period. AEIs must pay the subsidized premium amount applicable to the period of retroactive coverage by the later of (i) February 19, 2010 (60 days from the enactment of the legislation) or (ii) 30 days from the date that the AEI is given notice, as described below.
Rebate for Full COBRA Premiums
Group health plans are also required to allow AEIs who continued to maintain COBRA coverage after the lapse of the AEI’s subsidy period to be refunded for 65% of the COBRA premium payments that were paid for up to six months following the lapse of the nine-month COBRA subsidy period. Group health plans may apply the overpayment as a credit toward subsequent premium payments as long as it is reasonable to believe that the credit can be used within six months of the overpayment. Otherwise, the overpayment must be reimbursed to the AEI.
Notice Requirements
Notice of the COBRA extension must be provided to any person who is an AEI at any time on or after October 31, 2009, or who experiences an involuntary termination on or after that date. This notice must be provided on or before February 19, 2010 (60 days after enactment of the legislation). Further, employers must provide notice of the extension and the retroactive election period to any individual who is eligible within 60 days of the date that the nine-month subsidy period applicable to such individual expired. The Department of Labor is expected to issue model notices within the next month.