COBRA - In Case You Were Wondering

Unless you have been under a rock, you'll have noticed that last week, the President signed the Unemployment Compensation Extension Act of 2010.  In the past, similar bills also included an extension of the COBRA premium assistance program.  That did not happen this time.

The Department of Labor has updated its COBRA webpage to clarify that the COBRA premium reduction under ARRA is not available for individuals who experience involuntary terminations after May 31, 2010.

Will Congress Extend Premium Assistance for COBRA Benefits Again?

As the law currently provides, the COBRA premium assistance program expires on March 31, 2010.  That is, any employee involuntarily terminated after March 31, 2010, must still be offered COBRA coverage but the employee will not be able to pay only the 35% and have the federal government reimburse the rest through a payroll tax credit.

There is, however, a bill pending in Congress that would extend the COBRA premium assistance program to cover involuntary terminations that occur on or before April 30, 2010.  The bill passed the house but a final vote in the Senate was filibustered and no vote is expected before March 31, 2010.

The Senate is, in fact, in recess and isn't expect to consider the bill until April 12, 2010, so neither employers nor employees will know until mid-month whether the COBRA premium assistance program will apply to involuntary terminations that happen in April 2010.  Should the program be extended, which seems probable, expect it to apply retroactively, to all involuntary terminations during April 2010.

A prior post addressed the COBRA notices employers will need to send out to affected employees.  Expect something similar to be required if the COBRA premium assistance program gets extended in mid-April.

DOL Releases Updated COBRA Notice For Recovery Act Extension

The DOL has released several model COBRA notices that employers may use when providing notices of the availability of premium reductions and additional election periods for health care continuation coverage.  The notices cover the March 2, 2010 premium assistance extension.

The DOL includes other model forms as well.  These are included in various packages the DOL has created to cover different situations.  The packages include the following disclosures:

• A summary of ARRA’s premium reduction provisions.
• A form to request the premium reduction.
• A form for plans (or issuers) that permit qualified beneficiaries to switch coverage options to use to satisfy ARRA’s requirement to give notice of this option.
• A form for an individual to use to satisfy ARRA’s requirement to notify the plan (or issuer) that the individual is eligible for other group health plan coverage or Medicare.

DOL Prepares COBRA Premium Assistance Extension Notices

My prior post covered the December 2009 extension of premium assistance for employees involuntarily terminated and extending the assistance to those employees who lost their job between December 2009 and February 2010.  One of the requirements was that Plan Administrators send notices to affected employees.  The DOL has now prepared notices and these can be found at http://www.dol.gov/ebsa/COBRAmodelnotice.html

Because Congress waited until December to extend the notice, there will be COBRA participants who lost their job more than nine months before Congress extended the assistance period to 15 months.  As the DOL explained, “In addition, individuals who had reached the end of the reduced premium period before the legislation extended it to 15 months will have an extension of their grace period to pay the reduced premium. To continue their coverage they must pay the 35 percent of premium costs by February 17, 2010, or, if later, 30 days after notice of the extension is provided by their plan administrator.”

The DOL explains that these "transition period" individuals:

• must be provided this notice within 60 days of the first day of the transition period. An individual's "transition period" is the period that begins immediately after the end of the maximum number of months (generally nine) of premium reduction available under ARRA prior to its amendment. An individual is in a transition period only if the premium reduction provisions would continue to apply due to the extension from nine to 15 months and they otherwise remain eligible for the premium reduction.

Suppose, for example, a former employee's nine month assistance expired 12/1/2009.  The notice must be sent to the former employee before the end of January 2010.  The employee would have until February 17, 2010 in which to pay the December premium.  (If the full premium was paid, the employee is entitled to a refund.)

Calculating when the COBRA premium payment is due requires some thought.  I read the extension provision as saying that any premium (for a transition period former employee) that would be due January 1, 2010, need not be made until February 17, 2010 (instead of being due January 30, 2010, as it would under the 30 day grace period).  A premium payment due February 1, 2010, must be received no later than March 2 (i.e., 30 days later).  Fortunately, the DOL interprets the December extension as extending the grace period rather than the due date.

Reminder: COBRA Extension in 2010 Defense Budget

Today's Federal Register included the following notice relating to the extension of premium reductions for COBRA benefits when an employee is involuntarily terminated. It is worth passing on the information as a reminder:

• On December 19, 2009, President Obama signed the Department of Defense Appropriations Act of 2010 (Pub. L. 111–118), which extends the availability of the health care continuation coverage premium reduction provided for COBRA and other health care continuation coverage as required by the American Recovery and Reinvestment Act (ARRA) of 2009 (Pub. L. 111–5). Assistance eligible individuals now can be eligible for the subsidy if they incur an involuntary termination of employment triggering a COBRA election opportunity by February 28, 2010. Before the extension, Assistance Eligible Individuals had to experience an involuntary termination of employment by December 31, 2009. The length of the premium assistance period also is extended from 9 months to 15 months.

Additional information on the extension can be found at this DOL website: http://www.dol.gov/ebsa/cobra.html. The link on this page to the IRS website (COBRA Health Insurance Continuation Premium Subsidy) is particularly helpful because the IRS goes into considerable detail for employers wanting to claim the tax credit that funds the COBRA subsidy.

The old model notice (not yet updated to account for the new dates in the COBRA extension) along with other notices can be found here: http://www.dol.gov/ebsa/COBRAmodelnotice.html