COBRA-ARRA Subsidy Extension and New Requirements

HR Advisor feature article | February 2010

COBRA allows eligible individuals to continue employer-provided group health coverage for a specified time period due to certain qualifying events, such as job loss.

In February 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was enacted and provided a temporary 65% COBRA (or similar state continuation coverage) premium subsidy for eligible individuals.  In December 2009, President Obama signed the Department of Defense Appropriations Act (DDAA) which also amended the ARRA.

For individuals who were involuntarily terminated from employment (and for eligible family members), the DDAA:

• Extended the eligibility period to qualify for the COBRA subsidy,
• Increased the subsidy duration period, and
• Established new notice requirements.

Extended Eligibility Period. Under the ARRA, the current COBRA program provides a nine-month subsidy for COBRA-eligible individuals who experienced involuntarily employment termination and, as a result, who lost coverage on or after September 1, 2008, through December 31, 2009.  However, under the DDAA, the COBRA subsidy has been extended to 15 months for COBRA-eligible individuals who experienced involuntarily employment termination on or after September 1, 2008, through February 28, 2010.

Retroactive Subsidy Extension. Employers must allow an individual who lost the subsidized COBRA coverage when the subsidy expired to reactivate coverage by retroactively paying the COBRA premiums.  These individuals are considered eligible for the extension if they pay the reduced premium amount for the entire period since the lapse of their COBRA coverage by February 17, 2010 or, if later, 30 days after they receive proper notice of their new rights under the law. For individuals who paid for the full premiums following the lapse, employers generally must either make a reimbursement payment equal to the excess portion paid or credit that amount toward future premiums payable.

New Notice Requirements. Certain current and former participants and beneficiaries must be notified about the current premium reduction provisions. The ARRA mandates that plans notify certain current and former participants and beneficiaries about the current COBRA premium reduction subsidy. To help meet the requirements, the U.S. Department of Labor (DOL) has recently provided model notices – each one designed for a particular group of individuals and containing information to help satisfy the ARRA notice provisions (including those also recently added by the DDAA).

General Notice. This General (“full version”) Notice must be sent to all qualified beneficiaries (not just covered employees) who have not been provided a COBRA election notice, and who have a qualifying event at any time from September 1, 2008 through February 28, 2010 (regardless of the type of qualifying event). Individuals who experience any qualifying event after December 19, 2009 must get the updated General Notice within the normal timeframes for providing a COBRA election notice.

Extension Notice. This “Premium Assistance Extension Notice” should be provided to individuals who:

• As of October 31, 2009, were receiving premium assistance;
• As of October 31, 2009, had received the full nine months of premium assistance required under ARRA and either did not make a payment for subsequent periods of coverage, made payment of less than the full COBRA premium, or made payment of the full premium; or
• Experienced a qualifying event that was the termination of a covered employee’s employment on or after October 31, 2009, and did not received a notice that explained the premium subsidy as extended.

Alternative Notice. This alternative version is to be sent by insurance issuers that provide group health insurance coverage to individuals who became eligible for continuation coverage under state law provisions. Since such coverage requirements vary among states, issuers should modify this model notice as necessary based on the applicable state law.

Action Items. Here is a quick checklist you can use right now.

• Identify and double-check for individuals affected by the subsidy extension.
• If you have not done so yet, be sure to send required notices to affected individuals (which may be already managed by your COBRA administrator).
• Ensure that credits or refunds are provided to individuals, who paid the full COBRA amount for December and/or January and who are now eligible for a subsidy for those months, and restore coverage for individuals who did not make those payments but now pay them retroactively.
• Continue to track future eligibility and end dates for COBRA-eligible individuals and participants.

Note: COBRA could be extended even further (to June 30, 2010) due to the proposed Jobs for Main Street Act on which Congress is currently debating. 

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