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Employment Law Update:  What the COBRA Premium Extension Means for Employers

By Teresa R. Tracy

President Obama signed the Department of Defense Appropriations Act into law late last month including a provision distinctly unrelated to defense appropriations but welcome to countless individuals – an extension of the current nine-month COBRA subsidy to 15 months.

Under COBRA itself, eligible employees and their qualified beneficiaries are entitled to up to 18 months (or more, under certain circumstances) of health coverage under their employer’s group health plan.  Before the American Recovery and Reinvestment Act (ARRA) was passed on February 17, 2009, the employee and qualified beneficiaries were responsible for up to 102% of the cost of the premiums.  Under ARRA, employees who were involuntarily terminated and lost employer-based group health coverage between September 1, 2008 through December 31, 2009 (unless it was for gross misconduct) were only responsible for 35% of the premiums for nine months.  While the employer had to front the remaining 65% of the premium for that period, the employer could get a refundable tax credit for this cost. 

The New Provisions

The new provisions

  • extend the current nine-month COBRA subsidy for an additional six months, for a total of 15 months;
  • extend eligibility for the subsidy to workers who are involuntarily terminated on or before February 28, 2010, as well as their qualified beneficiaries;
  • require employers to provide current and future COBRA beneficiaries with notice of the extension; and
  • clarify that eligibility occurs beginning immediately upon an involuntary termination of employment that occurs within the eligibility period (prior provisions required both the qualifying event and the loss of coverage within the eligibility period).

There is a “transition period” for an assistance-eligible individual with respect to any period of coverage beginning before December 19, 2009 to which the subsidy extension applies.  Such an individual will be considered to have timely paid a COBRA premium for a transition period if the individual (a) had COBRA coverage for the period of coverage immediately prior to the transition period, and (b) pays the premium by February 17, 2010 or within 30 days after notice of the extension is provided by the plan administrator, whichever is later.  Thus, an individual who exhausted their nine months of subsidized coverage under ARRA and cancelled COBRA coverage can opt to resume subsidized coverage for another six months and reinstate coverage retroactively to the date it was lost.  Similarly, an individual who continued COBRA coverage at full price can resume subsidized coverage and receive a premium credit or refund from the employer to reimburse for the increased premium paid.

The extended premium subsidy applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.  If the maximum period of COBRA coverage ends before the subsidy ends, the subsidy does not serve to extend the period of COBRA coverage.

The provisions also provide for either a refund or a credit against future premiums for any individual who, as a result of the expiration of the subsidy, paid the COBRA premium in full.  Thus, individuals who lost the subsidy and paid the full 100% premium in December 2009 should contact the plan administrator to discuss a credit for future months of coverage or a reimbursement of the overpayment.

The plan administrator must provide notice about the changes resulting from the new provisions to individuals who have already been provided a COBRA election notice (unless the election notice already included the updated premium reduction information). 

  • Individuals who are “assistance eligible individuals” must be provided this notice by February 17, 2010;

  • Individuals who have a termination of employment on or after October 31, 2009 and lose health coverage must be provided with this notice within the normal time frame for providing continuation coverage notices;
     
  • Individuals who are in the “transition period” must be given this notice within 60 days of the first day of the transition period;

  • To any assistance-eligible individual who paid an unsubsidized COBRA premium during a transition period, advising that individual of the entitlement to either a reimbursement of the excess paid, or a credit towards future premiums.

There are four broad scenarios for the notices:

  • a general notice to be given to qualified beneficiaries covered by plans subject to the federal COBRA at the initial COBRA election opportunity (i.e., anyone who experiences a qualifying event after December 19, 2009);
  • an abbreviated general notice, which can be given to individuals who elected and are still covered by COBRA;
  • an alternative notice to be sent by issuers of group health insurance coverage subject to state continuation coverage laws;
  • a notice of extended election periods for eligible individuals who declined or discontinued COBRA coverage.

The premium reduction is available to “assistance eligible individuals,” i.e., an employee or qualified beneficiary who (a) became or becomes eligible for COBRA during the period beginning September 1, 2008 and ending on or before February 28, 2010 due to the involuntary termination of employment of the covered employee, and (b) elects COBRA coverage in a timely manner.  Those who are eligible for other group health coverage (such as a spouse’s plan) or Medicare are not eligible for the premium reduction.  Furthermore, there is no premium reduction for premiums paid for periods of coverage that began prior to February 17, 2009.

Examples

Here are some examples of the application of the new provisions.

An individual who became eligible for the ARRA COBRA coverage subsidy on July 1, 2009 (and whose maximum subsidy period would have originally ended on March 31, 2010) now has possible subsidies until September 30, 2010.

An employee who is involuntarily terminated in February 2010, and whose regular group health insurance continues through the end of February 2010, will be eligible for the subsidy beginning March 1, 2010.

An individual whose ARRA COBRA subsidy period expired on December 1, 2009, and who dropped coverage at that point due to cost, may now elect to pay the subsidized COBRA premium and be reinstated to COBRA coverage retroactive to December 1, 2009.

An individual who exhausted COBRA subsidiary and started paying full COBRA premiums can receive refunds or premium credits for the extra amount the individual paid.

The DOL Website

For more information on COBRA Continuation Coverage Assistance Under ARRA, click here.

Fact Sheet: COBRA Premium Reduction

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