March 9, 2010
COBRA Premium Assistance Subsidy Extended Again (for One Month) and Expanded – Further Extension Anticipated
On March 2, 2010, President Obama signed the Temporary Extension Act of 2010 (the Act), which provides short-term extensions of several federal programs, including unemployment compensation benefits.1 The law includes the second extension of the Consolidated Omnibus Budget Reconciliation Act (COBRA) premium assistance subsidy. The COBRA premium assistance subsidy was passed in February 2009 as part of the American Recovery and Reinvestment Act (ARRA),2 and amended by the Department of Defense Appropriations Act for Fiscal Year 2010 (the DOD Act).3
Background on the Subsidy
The subsidy was initially available to those who were involuntarily terminated between September 1, 2008 and December 31, 2009, and was available for nine months. The DOD Act extended the program through February 28, 2010 and increased the subsidy period from nine months to 15 months. The new Act extends the subsidy to involuntary terminations occurring through March 31, 2010 and adds a new set of eligible individuals, as described below. In general, the new Act does not affect other provisions of the COBRA premium assistance subsidy other than the eligibility date. For example, an individual whose employment is involuntarily terminated March 31, 2010, would now be eligible for the subsidy under the same terms and conditions as someone terminated effective February 28, 2010.
The Latest Extension
Specifically, the Temporary Extension Act:
- Extends the COBRA premium assistance subsidy eligibility window for those who are involuntarily terminated from employment from February 28, 2010 to March 31, 2010.
- Adds a new set of individuals who are eligible for the subsidy for periods of coverage beginning after the date of enactment (March 2, 2010). Specifically, individuals whose qualifying event is reduction of hours followed by an involuntary termination of employment are now eligible for the premium assistance subsidy. These individuals must meet two criteria: The reduction in hours which led to a loss of coverage must occur between September 1, 2008 and March 31, 2010; and the involuntary termination must occur on or after March 2, 2010.
- Requires plan administrators to provide a new notice to individuals who experience a reduction in hours followed by an involuntary termination on or after March 2, 2010. The notices must be provided within 60 days from the date of the termination of employment, and must include notification about a new election period.4
- Creates a new election period that applies to individuals who experience a reduction in hours with a subsequent involuntary termination of employment, and who did not make a COBRA election based on the reduction in hours (or made and discontinued an election). The Act does not address when an individual must make a new election or when the election would be effective. The Act does state that the COBRA period for that individual is determined based on the date of the reduction in hours, not the involuntary termination. The individual does not have to retroactively elect COBRA back to the reduction in hours date, but may merely pay for prospective coverage.
- Creates a new penalty of $110 per day that the Secretary of Labor may assess against a plan sponsor or health insurance issuer if they fail to comply with a determination of the Secretary on expedited reviews of denials of the subsidy. In addition, the Act clarifies that individuals have the right to bring a civil action to enforce the Secretary's decision and obtain appropriate relief.
- Deems a qualifying event to be involuntary termination if the employer's determination is reasonable and the employer maintains supporting documentation of the determination, including an attestation by the employer of involuntary termination. The new provision is similar to Q&A RD-1 published by the Internal Revenue Service (IRS).5 However, it is unclear how this would apply for multiemployer plans.
- Makes technical changes to the transition rule and payment dates under the DOD Act to ease administration of these rules.
Implications for Plan Sponsors
Plan sponsors should review the new law with their legal counsel to determine their obligations under the law. It appears that plan sponsors will have to take immediate action, including:
- Continue to provide the subsidy through March 31, 2010.
- Revise future COBRA notices to reflect the new March 31, 2010 premium assistance subsidy eligibility period. (There is no requirement to notify participants about the extension.)
- Work with their COBRA administrator to assure that a process is in place to identify individuals who had a reduction in hours followed by a subsequent involuntary termination on or after March 2, 2010.
- Provide notices to individuals terminated on or after March 2, 2010 who had a previous reduction in hours. Include in this notice information about the new election period available to individuals who did not elect COBRA after their reduction in hours (or who elected COBRA but discontinued it).
- For individuals who had a reduction in hours, followed by involuntary termination and elected COBRA, assure that their COBRA premium is adjusted effective for the first period of coverage after March 2, 2010.
- Be alert for individuals who may not understand the new provisions, or who may be caught in the transition periods between the laws. Many plan sponsors have reported situations in which individuals are confused about their subsidy eligibility. Plan newsletters or other communications may be helpful to explain the subsidy to individuals, even if the plan has compliant COBRA notices.
Outlook for Further Extension of the Subsidy
The House and Senate are actively considering legislation that would further extend the COBRA premium assistance subsidy. For example, the Jobs for Main Street Act (H.R. 2847), passed by the House in December 2009, would extend the COBRA premium assistance subsidy eligibility window to June 30, 2010. The Senate will soon consider the American Workers, State, and Business Relief Act of 2010 (H.R. 4213), which would extend the program through December 31, 2010.
Plan sponsors will want to stay informed about further developments on this legislation.
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As with all issues involving the interpretation or application of laws, plan sponsors should rely on their legal counsel for authoritative advice on the interpretation and application of the new law extending the COBRA premium subsidy. The Segal Company can be retained to work with plan sponsors and their attorneys to comply with the COBRA premium assistance program, including providing assistance in developing policies and procedures to handle this new program, designing notices and evaluating COBRA premium methodology.
- When text for this law, Public Law 111-144, is available online, it will be accessible from the Government Printing Office's Web site. (Click on the following text to return to the Capital Checkup.)
- The introduction of the COBRA premium subsidy was discussed in The Segal Company's February 2009 Bulletin, "The Stimulus Law's Temporary Subsidy for COBRA Premiums." (Click on the following text to return to the Capital Checkup.)
- The last extension of the COBRA premium subsidy was discussed in Segal's December 2009 Bulletin, "COBRA Premium Subsidy Extended." (Click on the following text to return to the Capital Checkup.)
- When the Department of Labor revises its model notices to reflect the Act, those notices will likely be available on this Web page: Notices. (Click on the following text to return to the Capital Checkup.)
- Those questions and answers are on the IRS Web site. (Click on the following text to return to the Capital Checkup.)
Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.