Congress Extends and Expands COBRA "Subsidy"

December 22, 2009

On December 21, 2009, President Obama signed the 2010 Defense Appropriations Act. Among other things, the Act extends the eligibility period for the COBRA premium subsidy from December 31, 2009 to February 28, 2010 and expands the maximum duration of the subsidy from 9 to 15 months. The longer subsidy period applies retroactively and will require plan administrators to provide a supplemental notice to affected individuals.

Background

The COBRA subsidy initially was included in The American Recovery and Reinvestment Act of 2009 (commonly known as the stimulus bill) and provided a temporary COBRA premium subsidy for employees who lost health plan coverage between September 1, 2008 and December 31, 2009 due to involuntary terminations of employment. Our February 24, 2009 and April 3, 2009 Client Alerts provide detailed overviews of the subsidy and various issues it raises. Key provisions of the subsidy, as originally enacted, included:

The subsidy was generally available to any employee who lost health plan coverage between September 1, 2008 and December 31, 2009 due to an "involuntary" termination of employment (other than due to gross misconduct). It also applies to qualified beneficiaries of these employees.
The amount of the subsidy was 65% of the COBRA premium actually charged to the eligible individual.
The subsidy was not a direct payment to the eligible individual. Rather, the health plan must charge the eligible individual the subsidized rate, and the employer (or other person that receives the premiums from the eligible individual) was entitled to a credit for the subsidy toward its payroll tax liability.
The subsidy generally was available for up to nine months of coverage, subject to earlier termination in the event of eligibility under another group health plan or Medicare.

Changes Made by the Defense Appropriations Act

The Act makes two key changes to the subsidy rules:

It extends the eligibility period to February 28, 2010. Thus, the subsidy will apply to employees (and their qualified beneficiaries) who lose health coverage through February 28, 2010 due to involuntary terminations of employment.
The maximum subsidy period is extended from 9 to 15 months. As under prior law, the subsidy will terminate upon eligibility under another employer health plan or Medicare, if earlier.

The extension of the maximum subsidy period is not limited to individuals who lose coverage after enactment of the Act, but rather applies retroactively to any individual who previously was eligible. Any such individual who had reached the end of the 9-month subsidy period will have up to 60 days following enactment of the Act (or, if later, 30 days after receiving notice of the extension from the plan administrator) to retroactively pay the reduced premiums relating to the extension. For example, an assistance-eligible individual who ended COBRA coverage on November 30, 2009 due to not paying the (full) COBRA premium could elect in January 2010 to pay his or her 35% share of the premium for December 2009 and receive retroactive COBRA coverage for December. The Act requires plan administrators to provide notice of the extension within 60 days after the enactment of the Act (i.e., by February 19, 2010) to any such person who was assistance-eligible on or after October 31, 2009.

Conclusion

This brief summary highlights some of the key issues with the extension and expansion of the COBRA subsidy. In light of the retroactive application of the extended coverage period, plan administrators need to identify affected individuals and provide the required notice no later than February 19, 2010. They also need to modify their procedures to reflect the extension of the coverage period going forward.

Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or

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Congress Extends and Expands COBRA “Subsidy”