A Publication of Pepper Hamilton LLP
Employee Benefits Update
Extension of COBRA Premium Subsidy
Tuesday, December 29, 2009
The Department of Defense Appropriations Act of 2010 (H.R. 3326), which contains an extension to the COBRA subsidy premium program, was approved by both the House and Senate and signed into law by President Obama on December 19, 2009. The most significant aspects of the extending legislation are summarized below:
- Extension of Date. The COBRA subsidy is extended to loss of group health coverage due to involuntary termination through February 28, 2010 (extending the original date of December 31, 2009).
- Increased COBRA Premium Subsidy Period. The legislation extends the COBRA subsidy period from nine months to 15 months. Accordingly, Assistance Eligible Individuals (AEIs) who have received nine months of the subsidy are entitled to an additional six months of premium subsidy (the extension should not be construed as to provide AEIs with an additional 15 months of subsidy).
- Retroactive COBRA Elections for Transition Period. As part of a “transition period,” group health plans are required to permit an AEI who dropped COBRA coverage upon the expiration of the nine-month subsidy period to retroactively elect COBRA coverage for an additional period of up to six months, by paying the subsidized premium amount (i.e., 35 percent of premiums) for the time period of retroactive coverage. In order for this election to be effective, AEIs must pay the subsidized premium amount applicable to the period of retroactive coverage by the later of (i) 60 days from the enactment of the legislation (February 19, 2010) or (ii) 30 days from the date that the group health plan administrator provides the AEI with the applicable notice described below. The “transition period” with respect to an individual AEI means any period of coverage (i) if the period begins before December 19, 2009 (the enactment date) and (ii) if the COBRA premium subsidy applies to that period solely by operation of the subsidy extension (from nine months to 15 months).
- Rebate for Full COBRA Premiums Paid During Transition Period. Additionally, group health plans are required to allow AEIs who continued to maintain COBRA coverage after the expiration of the nine-month subsidy period (by paying the full premium amount of 102 percent) to be refunded for 65 percent of the COBRA premium payments that were paid for up to six months following the expiration of the nine-month COBRA subsidy period. The amount to be refunded may be refunded directly to the AEI or credited toward future COBRA continuation coverage premiums.
- Notice. The legislation adds new notification rules applicable to the extension of the subsidy. 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, must be provided with notice of the extension on or before February 17, 2010 (60 days after enactment of the legislation). Further, plan sponsors must provide notice of the extension and the retroactivity rules to any individual who is eligible for the retroactive COBRA election or retroactive rebate as described above within 60 days of the date that the AEI’s transition period begins (i.e., 60 days following the date that the nine-month subsidy period applicable to such individual expired).
It is expected that the Department of Labor will issue model notices and other guidance addressing the COBRA subsidy extension by the end of January 2010. For further information, please contact any member of our Employee Benefits Practice Group.
Jonathan A. Clark
Joseph F. Murphy