COBRA Subsidy Program Extended

By Ted Olsen & Kristi Anderson Wells

In our April 2009 newsletter and assorted client advisories, we reported on the portion of the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) providing a 65 percent subsidy for Consolidated Omnibus Budget Reconciliation Act ("COBRA") continuation coverage premiums charged to eligible employees who suffered (or would suffer) an involuntary termination of employment during the period from September 1, 2008, until December 31, 2009, and to family members who had lost (or would lose) such coverage as a result of such a termination.   

On December 19, 2009, The President signed legislation which, among other things, extends the federal subsidy of COBRA health insurance premiums for individuals who are involuntarily terminated on or before February 28, 2010.

The subsidy extension was included in H.R. 3326, the Department of Defense Appropriations Act, 2010 ("DDAA").  The law provides for a six-month extension of the original COBRA premium subsidy, from nine months to a total of 15 months.  In addition, the subsidy now applies to individuals who lose their jobs due to an involuntary termination through February 28, 2010.  The prior subsidy was set to expire for individuals who lost their jobs after December 31, 2009.

The subsidy extension provides for refunds or credits for retroactive premium assistance eligibility for those assistance eligible individuals who paid full COBRA premiums after the expiration of their nine-month subsidy period.  In addition, the law allows certain assistance eligible individuals - those who lost COBRA coverage when their premium subsidy expired and they were unable to pay the full COBRA premium - to pay the reduced COBRA premium retroactively in order to reinstate COBRA coverage.  This retroactive payment must be paid by the later of 60 days after the DDAA is enacted (by February 17, 2010) or 30 days following receipt of notice of the ability to pay the retroactive premiums.

In addition to an extension of the subsidy, the law requires that group health plan administrators provide a new notice describing the subsidy extension and the ability to make retroactive premium payments to:

• Assistance eligible individuals who are on COBRA on or after October 31, 2009;
• Individuals who experience a COBRA qualifying event on or after October 31, 2009; and
• Assistance eligible individuals who lost COBRA coverage due to nonpayment of premiums prior to the date that the DDAA is enacted.

This notice must be provided by the administrator of the group health plan within 60 days after the date of the enactment of the DDAA (by February 17, 2010) or, in the case of a qualifying event occurring after the date that the DDAA is enacted, consistent with the required timing of notices upon the occurrence of a COBRA qualifying event.

Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.

© 2010 Sherman & Howard L.L.C.                                                   January 5, 2010