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Extension of COBRA Premium Subsidy Under the Temporary Extension Act of 2010

March 5, 2010

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end due to a qualifying event such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan.

The American Recovery and Reinvestment Act of 2009 (ARRA) originally provided for a federal COBRA premium subsidy for up to nine months for persons becoming eligible for COBRA benefits due to the involuntary termination of a covered employee’s employment during the period from Sept. 1, 2008, to Dec. 31, 2009. Eligible individuals pay only 35 percent of their COBRA premiums; the remaining 65 percent is reimbursed to the employer through a tax credit. The premium subsidy applies to periods of continuation coverage that began on or after Feb. 17, 2009. Comparable rules apply to small group health plans subject to state laws similar to COBRA.

ARRA was amended on Dec. 19, 2009, by the Department of Defense Appropriations Act, 2010 (2010 DOD Act), extending the qualifying involuntary termination eligibility period for two months until Feb. 28, 2010, and increasing the maximum period for receiving the subsidy for an additional six months (from nine to 15 months). Individuals who had reached the end of the premium subsidy period before the legislation extended it to 15 months are afforded additional time to pay the reduced premiums related to the extension. To continue their coverage they must pay the 35 percent of premium costs by 60 days from the effective date or, if later, 30 days after notice of the extension is provided by their plan administrator.

Please click here to read the current U.S. Department of Labor’s Fact Sheet describing, among other things, the notice requirements under COBRA/ARRA as amended by the 2010 DOD Act.

ARRA has now been further amended by the Temporary Extension Act of 2010 to extend the premium subsidy to individuals affected by involuntary terminations occurring up to March 31, 2010. In addition, ARRA has been amended to extend the premium subsidy to individuals affected by involuntary terminations occurring any time on or after March 2, 2010, if they had incurred a qualifying reduction of hours at any time from Sept. 1, 2008, through March 31, 2010. In the case where termination follows a reduction of hours, however, the continuation coverage period will be calculated from the date of the reduction in hours, not the date of termination of employment. Note also that individuals who did not elect COBRA at the time of the reduction in hours will have a new opportunity to elect COBRA at the time of termination. An amended Fact Sheet and amended notice forms reflecting the Temporary Extension Act of 2010 should soon be available at www.dol.gov/cobra.

For more information on this alert or any other labor and employment issues, please contact any of the lawyers listed below:

Boston
John Adkins, john.adkins@bingham.com, 617.951.8551
Louis Rodriques, Co-chair, Labor and Employment Group,louis.rodriques@bingham.com, 617.951.8340

Los Angeles/Orange County
Jacqueline Aguilera,jackie.aguilera@bingham.com, 213.229.8439
Debra Fischer, debra.fischer@bingham.com, 213.680.6418

San Francisco
James Severson, james.severson@bingham.com, 415.393.2242

New York
Douglas Schwarz, doug.schwarz@bingham.com, 212.705.7437

Tokyo
Mie Fujimoto, mie.fujimoto@bingham.com, 81.3.6721.3138

Authored by: John F. Adkins

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