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eTrends - Extension of COBRA Premium Reductions Enacted

01.05.2010

As discussed in our previous eTrends, the American Recovery and Reinvestment Act of 2009 (“ARRA”) provided certain “assistance eligible individuals” or “AEIs” the right to receive a 65% discount on COBRA premiums for up to 9 months of coverage.  On December 19, 2009, ARRA was amended to provide two significant extensions of these premium reduction benefits.  First, the amendment extends the maximum period for which AEIs may receive COBRA premium reductions by 6 months (from 9 months to 15 months).  Second, the amendment extends the eligibility period during which individuals experiencing involuntary terminations of employment may qualify for COBRA premium reductions by 2 months.  As a result, the original December 31, 2009 eligibility deadline now extends to February 28, 2010. 

Plan administrators are required to provide notice of these changes to all former employees who either (1) qualified as AEIs for COBRA subsidy purposes, or (2) experienced a COBRA qualifying event due to termination of employment (whether voluntary or involuntary) at any time on or after October 31, 2009.  Plan administrators have until February 17, 2010 to provide notice of these extended COBRA benefits.  (Plan administrators should incorporate the new COBRA benefit information in their standard COBRA notices and election materials as soon as possible so that individuals becoming eligible for COBRA after December 19, 2009 receive a single, updated COBRA package by the regular deadline for sending COBRA notices.)
 
Under ARRA, the initial 9-month premium reduction period took effect with the first COBRA “coverage period” starting on or after February 17, 2009.  Accordingly, the earliest AEIs will have recently exhausted their initial 9-month premium reduction period as of their first coverage period ending on or after November 17, 2009.  Since most COBRA programs are administered on a monthly basis, most of these earliest AEIs will have exhausted their initial 9-month subsidy period on November 30, 2009.  Many of these AEIs may have failed to timely pay the December 2009 COBRA premiums thinking they were required to pay the full (unsubsidized) COBRA premium rate.  As a result, plan administrators must notify AEIs having lost coverage for not paying their December premiums that they may have an extended grace period.  Plan Administrators generally have 60 days from the start of the participant’s transition period (i.e., typically 60 days from December 1, 2009 or until January 29, 2010) to provide the special notice.  The notice must inform eligible AEIs of their right to have COBRA coverage retroactively reinstated if the AEI pays the subsidized (i.e., 35%)  COBRA premium by the later of:  (i) February 17, 2010 or (ii) 30 days following receipt of the special notice. 

Interestingly, the amendment does not expressly provide for similar COBRA reinstatement rights for the next group of early AEIs exhausting their initial 9 months of COBRA discounts as of December 31, 2009.  Because plan administrators are not required to provide general notices of the amendment changes before February 17, 2010, it is possible that some of these AEIs will fail to timely pay their COBRA premiums for January 2010 thinking they have to pay the full (unsubsidized) COBRA premiums.  Given the general intent of the amendment, we anticipate that eligible AEIs who drop or lose COBRA coverage prior to having been informed of the change in the law and the ability to pay the subsidized rate will also be given an extended grace period to pay and have coverage reinstated.  Plan administrators may wish to try and head off confusion in this area by sending general notices of the extended premium discounts before the end of the regular grace period for paying January 2010 COBRA premiums (typically at the end of January).   

On the other hand, some AEIs not aware of the recent amendment may elect to continue COBRA by paying the full (unsubsidized) December 2009 (and/or January 2010) premiums.  These individuals will be entitled to credits for future months of coverage or a reimbursement of their “overpayment” amount once the COBRA premium discount has been factored in.  Employers and plan administrators will need to work closely with participants to develop appropriate procedures for reimbursing or crediting AEIs for overpayments.

As it did with earlier COBRA premium reduction notices, the U.S. Department of Labor (“DOL”) has indicated that it intends provide “model” notices for employers and plan administrators to use in crafting required COBRA notices.  The DOL anticipates releasing such notices by mid to late January and so should have the model notices available prior to the February 17, 2010 deadline for providing general notices of the COBRA changes.  Some plan administrators, however, may wish to prepare their own  notices (or possibly a short, interim “heads-up” to AEIs who exhausted COBRA premium benefits in December) in advance of the model DOL notices to try and reduce any confusion with respect to missed premium payments or “overpayments.”

COBRA generally does not apply to health benefit plans sponsored by employers with less than 20 employees.  However, the premium reductions may apply to small employers who are covered under state laws that provide similar requirements for insurance companies. ARRA imposes various other requirements on COBRA beneficiaries in order to qualify as AEIs.  These requirements are discussed in more detail in our prior E-Trends.

Please contact Jamie Hinkle with any questions.

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  • Alicia A. Gilleskie agilleskie@smithlaw.com
  • Frederick R. Zufelt fzufelt@smithlaw.com

Smith Anderson publishes eTrends periodically as a service to clients and friends. The purpose of this eTrends is to provide general information about a significant legal development in the field of employment law. Readers should be aware that the facts may vary from one situation to another, so the conclusions stated herein may not be applicable to the reader’s particular circumstances.

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Jamie Greene
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T: 919.838.2045

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