At the beginning of 2009, employers, insurers and COBRA administrators revised their procedures and notices to implement the COBRA subsidy provided under the American Recovery and Reinvestment Act of 2009 (“ARRA”). These provisions allowed certain eligible individuals to elect COBRA coverage and pay only 35% of the COBRA premium for up to 9 months. Subject to certain exceptions, employers then collect the other 65% of the premium from the federal government through a credit claimed on the employer’s payroll tax return. This COBRA subsidy was a temporary measure that was to be available only to individuals who were involuntarily terminated from employment and were entitled to elect COBRA coverage on or prior to December 31, 2009. On December 19, 2009, President Obama signed the Department of Defense Appropriations Act, 2010, which includes an amendment extending the COBRA subsidy (the “Subsidy Amendment”).
The Subsidy Amendment extends the December 31, 2009, deadline for eligibility (until February 28, 2010), and increases the length of time for which the subsidy is paid (up to 15 months). This law will provide financial assistance to those individuals who have lost their jobs, and employers again will be required to revise their administrative procedures and to provide additional notices to affected individuals (the first of which is required by January 29, 2010). In addition, due to the technical wording of the statute, the Subsidy Amendment itself creates new open issues for employers and administrators.
Two Month Extension of COBRA Subsidy Eligibility Period
Under the Subsidy Amendment, individuals who lose health plan coverage following an involuntarily termination of employment that occurs on or before February 28, 2010 may be eligible for the COBRA subsidy. For details on the other requirements that continue to apply for an individual to be eligible for the subsidy, the Department of Labor has issued FAQs regarding the COBRA subsidy under ARRA, available at: http://www.dol.gov/ebsa/faqs/faq-cobra-premiumreductionEE.html.
The Subsidy Amendment makes another important change to the eligibility period that will increase the number of individuals eligible for the subsidy. Prior to the Subsidy Amendment, an individual was eligible for the COBRA subsidy only if he or she had an involuntary termination of employment and was eligible to elect COBRA coverage on or prior to December 31, 2009. Because many plans continue coverage through the end of the month in which a termination occurs, many employees who are involuntarily terminated in December are not entitled to elect COBRA until January 1. These individuals would not have been eligible for the COBRA subsidy prior to the Subsidy Amendment. Under the new law, however, an individual is eligible for the subsidy as long as the qualifying event (that is, an involuntary termination of employment) occurs on or prior to February 28, 2010, even if he or she is not eligible to elect COBRA until after February 28, 2010.
Maximum Coverage Period
Another welcome change for terminated employees is that the maximum period of subsidized coverage will now be 15 months as opposed to 9 months. As provided under ARRA, the COBRA subsidy may terminate earlier if the individual becomes eligible for coverage under Medicare or another group health plan (even if the individual does not enroll in such coverage), or the maximum COBRA period ends.
Missed COBRA Premiums, the “Transition Period” and Overpayments
Eligible individuals whose 9 month subsidy period expired in November and who failed to pay their COBRA premiums for the “transition period,” are entitled to have their COBRA coverage reinstated retroactively if they pay the missed premium by the later of February 17, 2010, or 30 days after receiving the notice that is required to be provided to them (see below). The term “transition period” is defined as the period of coverage that begins before December 19, 2009 (which typically will be December 1-31). Although it does not specifically address whether January premiums can be paid retroactively, such an interpretation would not make much practical sense – i.e., notices are not required until the end of January and because the individual has until February 17 to pay the premiums, the January premium would be late as well. If this issue is not clarified by the Department of Labor or Internal Revenue Service, employers will need to determine how they will handle January late payments. One possible solution would be to send the notices as early as possible in January so that these premiums would more likely be paid on a timely basis.
Another issue raised by the narrow definition of “transition period” is that the right to reinstate coverage for failure to make a premium payment does not appear to apply to individuals whose initial 9 month subsidy period ran from April 1 through December 31. It is likely that some of these individuals will fail to pay the January COBRA premium because they are unaware of the subsidy extension and, therefore, will lose COBRA coverage in January. Under the definition of “transition period”, this group appears to not have a right to reinstate the coverage by paying the January premium following receipt of the notice. We hope that additional guidance is issued to clarify whether this unexpected result was intentional or whether these individuals also will have the right to reinstate coverage if they pay the premiums following receipt of the notice of the extended COBRA period. In the absence of such clarification, employers could send the notice to this group of individuals as early as possible in January, thereby allowing them sufficient time to pay the January premium on time.
Eligible individuals who paid the full COBRA rate (without the benefit of the 65% COBRA subsidy) in December (and later months) will be entitled to a refund or credit of the overpayment under the rules that applied to overpayments made when ARRA was first enacted (please refer to our February 24, 2009 Legal Alert).
Required Notices of the COBRA Subsidy Extension
The Subsidy Amendment has two new notice requirements. First, plan administrators of group health plans must provide notice of the COBRA subsidy extension by February 17, 2010, to all individuals eligible for the subsidy on or after October 31, 2009, and to individuals who have an involuntary termination of employment that entitles them to COBRA coverage on or after October 31, 2009. The notice to future eligible individuals could be incorporated into the existing notices reflecting the COBRA subsidy under ARRA.
An additional notice is required to be provided to individuals who lost COBRA coverage for failure to timely pay the premium (as described above) or who paid the full COBRA premium (as opposed to 35% of such premium). This notice must explain their right to make retroactive payments to reinstate their COBRA coverage. Employers must provide this notice within 60 days of the individual’s transition period (which typically begins on December 1). In other words, if an individual was entitled to the initial 9 month COBRA subsidy from March 1 through November 30 and then failed to pay his full COBRA premium in December, this individual must receive a notice by January 29, 2010, that explains his right to the COBRA subsidy for up to 15 months and his right to reinstate COBRA by paying the missed premiums within the deadlines described above.