IMMEDIATE ACTION REQUIRED: EXTENSION OF COBRA PREMIUM SUBSIDY

On December 21, 2009, President Obama signed the Department of Defense Appropriations Act of 2010 (the “Act”) into law. The Act extends the COBRA subsidy premium created under the American Reinvestment and Recovery Act of 2009 (“ARRA”). The ARRA provided a federal government subsidy of COBRA premiums for certain employees (and their dependents) who lost group health insurance coverage due to an involuntary termination. The Act expands the COBRA premium subsidy in the following ways:

+Eligibility: The time period for determining individuals eligible for premium assistance has been extended. Under the ARRA, individuals who were involuntarily terminated between September 1, 2008, through December 31, 2009, were eligible for the subsidy. Under the Act, individuals who are involuntarily terminated between September 1, 2008, through February 28, 2010, are eligible to receive premium assistance.

+Length of Premium Assistance: The length of the premium subsidy has been extended for an additional six months. Previously under the ARRA, individuals were entitled to a subsidy of up to nine months unless their coverage terminated earlier due to a qualified beneficiary becoming eligible for coverage under another group health plan (e.g., a spouse’s plan) or eligible for Medicare benefits or the normal expiration of the COBRA coverage period. The Act extends the period during which the subsidy is available to individuals to fifteen months (unless coverage is terminated earlier as mentioned above).

+Retroactive Premium Assistance: Assistance eligible individuals are eligible to receive retroactive premium assistance if the individual’s nine-month subsidy period under the ARRA has ended. Individuals who reached the end of the period of premium assistance and ceased paying COBRA premiums have an extended grace period during which they can pay the reduced premium and restart COBRA coverage. Further, individuals whose nine-month subsidy period ended but who continued to pay the full COBRA premium can receive a reimbursement for the amount of the subsidy.

+Notification Requirements: The Act requires plan administrators to notify individuals of the expanded COBRA premium subsidy. Specifically, a plan administrator must provide notice of the expanded COBRA premium subsidy by February 17, 2010 (or, in the case of new qualifying events, within the time frame specified by COBRA) to individuals who are assistance eligible individuals on or after October 31, 2009, and individuals who experience a COBRA qualifying event due to a termination of employment on or after October 31, 2009. Furthermore, notice of the subsidy must be provided to individuals who reached the end of the nine-month subsidy period and ceased paying COBRA premiums and to individuals who continued to pay the full COBRA premium after the nine-month subsidy period ended, to inform them of the availability of the retroactive premium assistance. It is our understanding that the Department of Labor may issue model notices to assist plan administrators with their notice obligations.

Similar to measures taken in February 2009, employers should identify individuals who must receive notice of the extended premium subsidy, distribute notices of the enhanced premium subsidy by February 17, 2010, and revise or supplement their existing COBRA communication materials with a description of the expanded premium subsidy. 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 attorneys in our Employee Benefits and Executive Compensation Practice Group.

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