New Law Extends COBRA Subsidy Benefits and Includes Important Notification Requirements
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 dependents) 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 another 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 another 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.
- Employees (and other qualified beneficiaries) who experience a COBRA qualifying event due to involuntary termination of employment during the period September 1, 2008-February 28, 2010 are eligible for the subsidy (provided they meet the other requirements necessary to be an Assistance Eligible Individual).
- The DOD Act clarifies that to qualify for the subsidy, the individual’s qualifying event must occur during the period September 1, 2008-February 28, 2010, even if the individual does not become eligible for COBRA until after this period. For example, an employee involuntarily terminated on February 27, 2010, may not lose coverage under the employer’s plan, and become eligible for COBRA, until March 1, 2010. This employee could still be eligible for the subsidy because his or her qualifying event – termination – occurred within the statutory period.
- The maximum length of the subsidy has been extended from nine months to fifteen months.
- Assistance Eligible Individuals who, as of December 19, 2009, exhausted their nine months of subsidized coverage under the original program and stopped paying their premiums will be able to participate and may obtain up to six additional months of coverage, retroactive to their exhaustion of the subsidy (assuming they are still otherwise eligible for the subsidy).
- Assistance Eligible Individuals who, as of December 19, 2009, exhausted their nine months of subsidized coverage and are now paying full COBRA premiums will be able to be reimbursed/credited for the full premiums that they paid (in excess of their 35% subsidized share), so that they may receive up to six additional months of subsidized coverage (retroactive to their exhaustion of the subsidy) (assuming they are still otherwise eligible for the subsidy).
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.
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).
- For individuals who were Assistance Eligible Individuals at any time on or after October 31, 2009, or individuals who experience a COBRA qualifying event due to termination of employment (voluntary or involuntary) on or after October 31, 2009, the plan administrator is required to notify them of the changes to the COBRA subsidy program by February 17, 2010, or in the case of a termination after December 19, 2009, in accordance with the time frames set forth in ARRA.
- For Assistance Eligible Individuals who exhausted their nine months of subsidized coverage prior to December 19, 2009 (i.e., those who stopped paying their premiums/are now paying the full premiums and are still eligible for the subsidy), the plan administrator must notify these individuals of the changes to the COBRA subsidy program within 60 days of the individuals’ exhaustion of coverage. (E.g., if an individual exhausted his or her subsidized coverage on November 30, 2009, the individual must be notified within 60 days of December 1, 2009.)
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 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.
 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.”
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