Member Article

As widely expected, President Obama signed the Department of Defense Appropriations Act of 2010 (the Act), which continues and enhances the governmental subsidy of COBRA continuation coverage. The COBRA subsidy was included in the American Recovery and Reinvestment Act of 2009 to provide assistance to employees, and their families, who were involuntarily terminated from employment.  The subsidy originally applied to employees terminated between Sept. 1, 2008 and Dec. 31, 2009 and their dependents.  Eligible individuals pay only 35% of the full COBRA premiums under their plans for up to nine months.

Although the COBRA subsidy was initially scheduled to expire on Dec. 31, 2009, the Act extends the subsidy and adds several enhancements. Specifically, the Act provides the following:

• Extension of Subsidy.  The premium subsidy is now available for COBRA coverage related to an involuntarily termination of employment between Sept. 1, 2008 and Feb. 28, 2010.
• Increased Duration of Subsidy Period.  The period for which the subsidy is provided is lengthened to 15 months from the date of termination.
• Retroactive Applicability.  Individuals who were previously eligible but ceased paying COBRA premiums after the expiration of their original subsidy period may restart paying for COBRA at subsidized rates retroactively to the date they stopped paying for COBRA.  Back premiums at the reduced rate must be paid by Feb. 17, 2010 (or, if later, 30 days after receiving the notice discussed below).  Individuals who exhausted their COBRA subsidy and began paying full COBRA premiums may receive refunds or credits for the extra amounts they paid.
• Notice Requirements.  Plan sponsors must notify individuals who were eligible for the subsidy on or after Oct. 31, 2009 that they may continue COBRA coverage with subsidized rates.  Plan sponsors must also notify individuals who were eligible for the original COBRA subsidy but either failed to pay COBRA premiums or paid the full COBRA premium after exhausting their original COBRA premium subsidy.  These notices must be provided by Feb. 17, 2010.  In addition, plan sponsors must update their regular COBRA notices to reflect the new COBRA subsidy rules.  The U.S. Department of Labor is expected to develop model notices for use by employers.

In light of the above requirements, plan sponsors should take immediate action to prepare and send notices and work with their COBRA administrator to allow the back payment of premiums, as appropriate.  It should be noted that further legislative developments related to the COBRA subsidy, including other proposed extensions, may be forthcoming.  Waller Lansden will provide updates on new developments.