President Obama signed into law on December 19, 2009 an extension and expansion of a COBRA premium subsidy law under the American Recovery and Reinvestment Act (ARRA) that was due to expire on December 31, 2009. The extension means new compliance obligations for employers, in that the program now runs through February 28, 2010, the subsidy period is expanded by six (6) months and new notice requirements must be met within a tight timeframe.
Earlier this year, in response to the poor economic conditions, the American Recovery and Reinvestment Act of 2009 established a new law under which “assistance-eligible individuals” (AEIs) were initially entitled to receive a 65% subsidy for continuation coverage premiums for up to nine months. Under the original law, an AEI is any COBRA qualified beneficiary who elects COBRA coverage and (1) has a loss of group health coverage as a result of an involuntary termination of employment (other than gross misconduct); and (2) has a qualifying event between September 1, 2008 and December 31, 2009, is otherwise eligible for COBRA coverage during that period and elects that coverage. The law included various new administrative and notice requirements for employers, many of which had to be met within a short period after ARRA was enacted.
Although the ARRA subsidy was supposed to be a short-term fix, as the economy’s rebound became more protracted than expected, in late fall lawmakers begin considering proposals to extend the law and earlier this month, President Obama called for an extension. At least three proposals were introduced, one simply extended the eligibility period by six months, the other two proposals both extended the eligibility period and made further tweaks to the subsidy law provisions.
An amendment to extend and expand the subsidy law was added to the House Department of Defense appropriations bill, Department of Defense Appropriations Act 2010 (H.R. 3326) which the House passed December 16, 2009, the Senate approved the House version, which then went to the president for his signature.
Following are the key provision of the COBRA subsidy extension:
- The amount of time an AEI can receive a subsidy increase from nine (9) months to fifteen (15) months.
- The subsidy eligibility period is expanded to include the period that begins with September 1, 2008 and ends with February 28, 2010(formerly December 31, 2009). Significantly, the new rule does not require that COBRA coverage begin by the end of the period (February 28). Instead, the person is an AEI as long as the COBRA qualifying event (involuntary termination of employment) occurs by February 28, 2010 and is entitled to COBRA coverage as a result of that event.
- For any AEI for whom the premium subsidy now applies due to the extension, there is a transition period consisting of any period of coverage that begins before the extension’s enactment date. Any period during which the applicable premium had been paid is to be treated as a period coverage, irrespective of any failure to pay the applicable premium for such period. In essence, those who have lost their subsidy by completing their nine months in November or later would be grandfathered in under the new legislation.
- Plan administrators must provide a notice on extension rights to AEIs who did not timely pay the COBRA premium for any period of coverage during their transition period or paid the full (nonsubsidized) premium without regard to the subsidy rules. The notice must be provided within the first sixty (60) days of their transition period, and must include information on the ability to make retroactive premium payments as a result of the transition period.
- In the case of any premium for a period of coverage during an AEI’s transition period, an AEI shall be treated for purposes of any COBRA provision as having timely paid the premium amount if he or she: (a) was covered under the COBRA coverage to which such premium related for the period of coverage immediately proceeding the transition period; and (b) pays, not later than sixty (60) days after the extension enactment date (or if later, thirty (30) days after the new notices are provided) the amount of the subsidized premium.
- In the case of an AEI who, during his or her transition period, paid the full premium amount for such coverage without regard to the subsidy amount, ARRA’s rules allowing for that AEI to be reimbursed for the excess premiums will apply.
- Plan administrators must provide notices of the new extension rights to individuals who became AEIs on or after October 31, 2009, or experience a qualifying event (consisting of termination of employment) relation to COBRA coverage on or after that date. The notice must be provided within sixty (60) days after the extension’s enactment date or, in the case of a qualifying event occurring after the enactment date, consistent with the timing of COBRA notices.
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