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New Law Extends COBRA Subsidy Benefits and Includes Important Notification Requirements

January 15, 2010

On December 19, 2009, President Obama signed the Department of Defense Appropriations Act (the “DOD Act”), which, among other things: (1) extends the COBRA subsidy benefits established under the American Recovery and Reinvestment Act of 2009 (“ARRA”); and (2) requires certain notices to be furnished by plan administrators of group health plans (which in many instances are the employers). 

Background on the Original COBRA Subsidy Program.

The purpose of ARRA’s COBRA subsidy is to allow eligible employees (and their dependants) who lose health coverage due to an involuntary termination of employment to continue their coverage under COBRA (or applicable state continuation laws) by paying a reduced premium (35% of their premium), for up to nine months.  The employer (or other coverage provider) subsidizes the remaining 65% of the individual’s premium, and is then reimbursed by the government through a tax credit.  

Under ARRA, the individuals who are eligible to pay these reduced premiums are referred to as “Assistance Eligible Individuals.”  To be an “Assistance Eligible Individual” under the original COBRA subsidy program, an employee (or other qualified beneficiary, such as the employee’s dependant) must have: (a) experienced a qualifying event for continuation coverage due to an involuntary termination of employment, and become eligible for COBRA coverage during the period September 1, 2008-December 31, 2009; and (b) timely elected continuation coverage.  Individuals who are eligible for other group health coverage or Medicare are not eligible for the subsidy. 

Key Benefits of the DOD Act.

The DOD Act expands individuals’ COBRA subsidy benefits under ARRA by extending: (a) the time period under which individuals may qualify for the COBRA subsidy (the original December 31, 2009 deadline is extended to February 28, 2010); and (b) the duration of Assistance Eligible Individuals’ subsidized coverage (the maximum period of coverage is extended from nine months to fifteen months). 

Highlights of the new law include the following benefits.  

The DOD Act does not change the administration of the COBRA subsidy program, or the requirements that an individual be involuntarily terminated and not eligible for other group health coverage or Medicare to qualify for the subsidy.

The U.S. Department of Labor has published a detailed Fact Sheet and Frequently Asked Questions regarding the extension of the COBRA subsidy program under the DOD Act, and the COBRA subsidy program in general.  These documents can be found at:  http://www.dol.gov/ebsa/COBRA.html.

Notice Requirements for Plan Administrators.

The DOD Act also includes important notice requirements for plan administrators of group health plans (which in many instances are the employers). 

The U.S. Department of Labor has published three model notices that plan administrators may adapt to their plans and use to comply with these notice requirements, and instructions regarding which notice should be used in different situations.  The three model notices are the: (a) Updated General Notice; (b) Premium Assistance Extension Notice; and (c) Updated Alternative Notice.  Highlights of the U.S. Department of Labor’s instructions regarding the use of these notices include the following:

(a)  Updated General Notice (includes updated information on the subsidy as well as general information regarding COBRA that is required in a COBRA election notice)

·        This notice should be used for all plans that are subject to COBRA, and should be provided to individuals who experience a qualifying event (e.g., termination) at any time from September 1, 2008 through February 28, 2010, regardless of the type of qualifying event, and who have not yet been provided with a COBRA election notice.

(b)  Premium Assistance Extension Notice (includes information about the changes made to the subsidy provisions of ARRA by the DOD Act).

·        This notice should be provided to individuals who are required to receive notice of changes to the COBRA subsidy program in the DOD Act, and have already been provided with a COBRA election notice that did not include information regarding the recent extensions to the COBRA subsidy program under the DOD Act. 

·        By February 17, 2010, a Premium Assistance Extension Notice should be provided to individuals who were Assistance Eligible Individuals as of October 31, 2009 (unless they exhausted their coverage - see below), and individuals who experienced a qualifying event of termination of employment (voluntary or involuntary) on or after October 31, 2009 and lost health coverage (unless they were already provided a timely, Updated General Notice – see above). 

·        Assistance Eligible Individuals who are in a “transition period” - i.e., those who exhausted their nine months of subsidized coverage and remain otherwise eligible for the subsidy - must be provided with this notice within 60 days of their exhaustion of their nine months of subsidized coverage (i.e., within 60 days of the first day of their transition period).  For example, if an employee exhausted his or her subsidized coverage on November 30, 2009, the employee must be provided with a Premium Assistance Extension Notice within 60 days of December 1, 2009. 

(c)  Updated Alternative Notice (model notice for continuation coverage under state law)

·        This notice should be used in the case that a plan is not subject to COBRA, and should be used by insurance issuers that provide group health insurance coverage to persons who became eligible for continuation coverage under a state law.

·        Continuation coverage requirements vary among states and issuers should modify this model notice as necessary to conform it to the applicable state law. Issuers may also find the Premium Assistance Extension Notice or the Updated General Notice appropriate for use in certain situations.

Copies of these three model notices and the instructions for their use may be obtained from the U.S. Department of Labor’s website at: http://www.dol.gov/ebsa/COBRAmodelnotice.html.  The U.S. Department of Labor’s website also provides guidance regarding situations where there is overlap between the types of notices that should be provided (i.e., situations where an individual may fall under the requirements for an Updated General Notice and Premium Assistance Extension Notice).

If you have any questions about this important new law, please do not hesitate to contact any of our attorneys.


[1] The period following an Assistance Eligible Individual’s exhaustion of subsidized coverage under the original subsidy program, during which they otherwise remain eligible for the subsidy, is referred to as their “transition period.”

IRS Circular 230 disclosure:  Any tax advice contained in this communication (including any attachments or enclosures) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.  (The foregoing disclaimer has been affixed pursuant to U.S. Treasury regulations governing tax practitioners.)