- Government Subsidizes COBRA Premiums -- Part IV
- December 29, 2009
- Law Firm: Troutman Sanders LLP - Atlanta Office
This is the fourth in a series of Advisories we have issued on the government’s temporary COBRA subsidy for qualified beneficiaries who lose or lost coverage due to an involuntary termination of employment. See our prior Advisories of February 20, March 3 and March 20, 2009 for details.
On December 21st, President Obama signed into law an extension and expansion of the COBRA premium subsidy law that was due to expire on December 31, 2009 as part of the Department of Defense Appropriations Act for Fiscal Year 2010 (the “Act”). Under the premium assistance program, the federal government temporarily subsidizes 65% of the COBRA premiums of “assistance eligible individuals.” The extension applies to state-mini COBRA as well. Below is a brief summary of the extension of and revisions to the premium subsidy.
- Extension of Subsidy Availability. The premium assistance program is available to “assistance eligible individuals -- originally defined as employees who lost their employer provided health coverage due to involuntary termination from employment (other than for gross misconduct) between September 1, 2008 and December 31, 2009. This eligibility period has been extended from December 31, 2009 to February 28, 2010.
- Effect on December 2009 Terminations. Under prior law, assistance eligible individuals terminated in December 2009 who maintained active coverage through December 31, 2009 were not eligible for the COBRA premium subsidy. The Act removes the requirement that COBRA eligibility occur on or before the last day of the eligibility period. Accordingly, an individual is an assistance eligible individual if that individual has an involuntary termination (other than for gross misconduct) between September 1, 2008 and February 28, 2010 and becomes eligible for COBRA coverage as a result of that termination.
- Increased Duration of Subsidized COBRA Coverage. The premium subsidy period is extended from the original nine months to fifteen months (or, if sooner, until the individual becomes eligible for coverage under another group health plan or Medicare). In no event, however, will the subsidy be provided beyond the end of the individual’s maximum 18-month period of COBRA continuation coverage.
- Retroactive Effects of Act. The extended period of the subsidy affects not only newly eligible assistance eligible individuals, but also those who were previously eligible and who ceased paying COBRA premiums after the expiration of their original subsidy end date. Assistance eligible individuals dropped from coverage for failure to pay premiums between their original subsidy end date and December 21, 2009 must be provided with an opportunity to pay back-premiums and remain covered under the employer provided health plan. Payments must be made by February 19, 2010 or, if later, 30 days after notice is provided. For those assistance eligible individuals who maintained COBRA coverage by paying the full COBRA cost after their COBRA subsidy ended, the employer must either apply a credit in the amount of the overpayment toward future premium balances or issue a refund for the amount of the overpayment. The credit method can only be used if it is reasonable to believe the credit can be used up within 180 days of payment. A notice describing the extension and the right to pay back-premiums and reinstate coverage must be provided to assistance eligible individuals dropped from coverage for failure to pay premiums between the period of the original subsidy end date and December 21, 2009.
- New Notice Requirements. The Act imposes new notice requirements on Plan Administrators. Generally, Plan Administrators must notify the following individuals of the COBRA subsidy extension:
- all individuals who have a voluntary or involuntary termination of employment on or after October 31, 2009 until February 28, 2010, and
- individuals who were assistance eligible individual between the period of October 31, 2009 and December 21, 2009.
The Department of Labor plans to issue new model notices within the next thirty days. However, Plan Administrators may want to provide informal notice of the extension to employees whose subsidy eligibility is about to expire.
- Planning Pointers. Plan Administrators must change COBRA election notices to provide that premium assistance is available for fifteen months relating to an involuntary termination of employment (other than for gross misconduct) occurring on or before February 28, 2010. Plan Administrators also must identify and notify certain assistance eligible individuals who lost premium assistance of the ability to make retroactive premium payments. Current assistance eligible individuals who have elected the COBRA subsidy also must be advised that eligibility has been extended from nine to fifteen months. Finally, employers may need to amend affected severance and health plans and summary plan descriptions to incorporate these changes.
An additional proposal that would extend further the COBRA subsidy is pending in Congress.