IMMEDIATE ACTION REQUIRED: FURTHER EXTENSION OF COBRA PREMIUM SUBSIDY

On March 2, 2010, President Obama signed into law the Temporary Extension Act of 2010 (the “Act”), which in part amends provisions of the American Recovery and Reinvestment Act of 2009 (“ARRA”) related to the COBRA premium subsidy. ARRA provides a federal government subsidy of COBRA premiums for certain individuals (and their dependents) who lose group health insurance coverage due to a qualifying event. The Act generally modifies the COBRA premium subsidy originally created by ARRA and later amended by the Department of Defense Appropriations Act of 2010 (“DODA”) in the following ways:

Eligibility Period: The time period for identifying individuals eligible for premium assistance has been extended one month. Under ARRA, as amended by DODA, an individual who was involuntarily terminated between September 1, 2008, through February 28, 2010, was eligible for the COBRA premium subsidy. Under the Act, an individual who is involuntarily terminated between September 1, 2008, through March 31, 2010, is eligible to receive premium assistance.

Qualifying Event: The qualifying events that allow individuals to receive the subsidy have been expanded. Under ARRA, an individual is eligible for the COBRA premium subsidy if he or she experiences an involuntary termination during the statutory time period. The Act expands what is considered a qualifying event that entitles individuals to the premium subsidy to include an individual who loses coverage because of a qualifying event that is a reduction of hours that occurs between September 1, 2008 through March 31, 2010, if the employee then is involuntarily terminated on or after March 2, 2010 through March 31, 2010. These individuals are entitled to a new COBRA election if they did not elect or elected and discontinued COBRA coverage following the reduction in hours.

Notification Requirements: Certain individuals must receive notification regarding the premium subsidy, as amended by the Act. On March 17, 2010, the Department of Labor issued model notices to assist plans with their notice obligations. While plans are not required to use the model notices, use of the notices generally satisfies the requirements of ARRA, as amended by the Act.

• Model Updated General Notice. This Updated General Notice must be provided to all qualified beneficiaries who experience a qualifying event at any time from September 1, 2008, through March 31, 2010, regardless of the type of qualifying event, and who have not yet been provided an election notice. This Updated General Notice includes updated information on the premium reduction, as modified by the Act, as well as information required in a COBRA election notice, and must be provided within the normal time period for providing the general COBRA notice.
• Model Notice of New Election Period. This Notice of New Election Period must be provided to all individuals who either did not elect continuation coverage when it was first offered or elected such coverage but subsequently discontinued the coverage and experience the following:

-a qualifying event that was a reduction in hours at any time between September 1, 2008, through March 31, 2010; and -a subsequent termination of employment at any time between March 2, 2010, through March 31, 2010.

This Notice of New Election Period must be provided within 60 days of the employee’s termination of employment.

• Model Supplemental Information Notice. This Supplemental Information Notice must be provided to all individuals who elected and maintained continuation coverage based on the following qualifying events:

• terminations of employment that occurred on or after March 1, 2010, for which notice of the availability of the premium reduction available under ARRA was not given
• reductions of hours that occurred during the period from September 1, 2008, through March 31, 2010 which were followed by a termination of the employee's employment that occurred on or after March 2, 2010 through March 31, 2010.

This Supplemental Information Notice must be provided to (1) individuals who experience a termination of employment for which notice of the availability of the premium reduction available under ARRA was not given, before the end of the required time period for providing a COBRA election notice and (2) individuals who experience a termination of employment after experiencing a qualifying event that consists of a reduction of hours within 60 days of the termination of employment.

• Model Notice of Extended Election Period. This Notice of Extended Election Period must be provided to all individuals who either did not elect continuation coverage when it was first offered or elected such coverage but subsequently discontinued the coverage and

• experienced a qualifying event that was a termination of employment at some time on or after March 1, 2010; and
• were provided notice that did not inform them of their rights under ARRA, as amended by the Act.

This Notice of Extended Election Period must be provided before the end of the required period for providing a COBRA election notice.

• Model Updated Alternative Notice. This Updated Alternative Notice must be provided to individuals who are eligible for comparable continuation coverage under state law who have experienced a qualifying event through March 31, 2010. However, since continuation coverage requirements vary among states, it must be further modified to reflect the requirements of the applicable state law.

Similar to measures taken in February 2009 and January 2010, employers should identify individuals who may be affected by the Act, prepare the necessary notices that include a discussion of the Act, and distribute such notices to the affected individuals. Be advised that legislation is pending that would extend the COBRA premium subsidy through the end of 2010. We continue to monitor the progress of this legislation and intend to publish a newsletter if additional action is required.

This newsletter is an outline of changes to the COBRA premium subsidy, not a comprehensive analysis of the Act. If we can be of assistance in answering any questions that you may have regarding the COBRA premium subsidy, please contact one of the attorneys in our Employee Benefits and Executive Compensation Practice Group.

This Memorandum is for information purposes only and should not be construed as legal advice. This information is not intended to create, and receipt of it does not constitute a lawyer-client relationship. For more information or an explanation about the matters discussed in this Memorandum, please contact any of the following attorneys in our Employee Benefits and Executive Compensation Practice Group.

IRS Circular 230 Disclosure – To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.