On December 21, 2009, the President signed a Law that amends the COBRA Subsidy provision of the American Recovery and Reinvestment Act (ARRA). The Law extends the time that certain former employees may receive and may qualify for subsidized COBRA continuation coverage.

Generally

The Law changes the original COBRA Subsidy rules as follows:

• Extends the time in which an individual may qualify for the COBRA Subsidy through February 28, 2010 (extended from December 31, 2009);
• Extends the amount of time from nine months to fifteen months that a former employee, who is an “assistance eligible individual” (AEI), may receive the COBRA Subsidy; and
• Individuals no longer have to be eligible for COBRA coverage by a specific date; rather the individual need only have a COBRA qualifying event that is an involuntary termination of employment occurring on or before February 28, 2010.

Who is Affected?

The Law affects the following:

• New AEIs, i.e., those individuals who qualify for the COBRA Subsidy due to an involuntary termination through February 28, 2010 and are ineligible to participate in another group health plan. See Littler ASAP dated February 2009 entitled Stimulus Package: An In-Depth Look at the New COBRA Subsidy in the ARRA.
• AEIs who stopped paying for COBRA coverage due to the end of the original nine month COBRA Subsidy period.
• AEIs who maintained COBRA coverage although their COBRA Subsidy ended.

Transition

AEIs whose COBRA coverage ended due to failure to pay for their COBRA premium between the time of the AEI’s original COBRA Subsidy end date and December 21, 2009 (“Transition AEIs”):

• Must be given the opportunity to retroactively pay COBRA premiums at the subsidized rate, up to a total of fifteen months.
• Transition AEIs must make their COBRA premium payment within the later of (1) February 19, 2010 or (2) 30 days after notice of the changes to the Law is provided to the Transition AEI.

Overpayments

AEIs who maintained COBRA coverage after the COBRA Subsidy period ended under the original provisions of ARRA and who continue to be AEIs (“Overpayment AEIs”), must be reimbursed for the difference between the amount paid and the subsidized COBRA amount via either a refund or credit towards future COBRA premium payments.

Notices

Notice of the COBRA Subsidy extension is required to be provided to the following individuals within the time indicated:

• Any individual who was an AEI on or after October 31, 2009.
  • Notice must be provided by February 19, 2010.
• Any individual whose COBRA rights relate to a termination of employment (whether voluntary or involuntary) and who would be eligible for COBRA coverage on or after October 31, 2009 through February 28, 2010.
  • Notice must be provided within the time that the original COBRA election notice rules require the employer to provide notice of COBRA rights (note that the notification of extension is in addition to the original COBRA Subsidy notices).
• Transition AEIs must receive information about (1) the COBRA Subsidy extension; (2) the right to reinstatement of COBRA coverage, and (3) the right to make retroactive COBRA premium payments at the subsidized rate (to bridge the time between the loss of COBRA coverage for failure to pay or late payment and December 21, 2009).
  • Notice must be provided within 60 days of the date the Transition AEI’s original nine month COBRA Subsidy ended.
• Overpayment AEIs.
  • Notice must be provided within 60 days of the date their original nine month COBRA Subsidy ended.

Next Steps

Identify

• Employees who are terminated and have not yet received their COBRA notice.
• Former employees who received COBRA notices but who have not yet elected COBRA.
• AEIs as of October 31, 2009 and determine if they are:
  • Transition AEIs; or
  • Overpayment AEIs.

Prepare Notices

• For newly terminated employees.
• For Transition AEIs.
• For Overpayment AEIs.

Send Notices