On December 19, 2009, the COBRA subsidy program first introduced by the American Recovery and Reinvestment Act of 2009 (ARRA) was extended as a part of the Department of Defense Appropriations Act, 2010 (2010 Act).  The extension allows individuals who are involuntarily terminated up to February 28, 2010 to pay only 35% of the premium for COBRA coverage and extends the maximum duration of subsidized coverage from 9 to 15 months.

Changes to Original Subsidy Provisions

ARRA created a new subset of eligible COBRA-qualified beneficiaries called Assistance Eligible Individuals (AEIs).  AEIs included any qualified beneficiaries who became eligible for, and elected, COBRA continuation coverage as a result of an involuntary termination of a covered employee's employment between September 1, 2008 and December 31, 2009.  AEIs were eligible to receive COBRA continuation coverage by paying only 35% of the COBRA premium charged by the plan.  Generally, the subsidy could continue for a maximum of 9 months, but ended earlier if the AEI became eligible for other group health plan coverage or Medicare.  The 2010 Act extends the final date an individual can become an AEI to February 28, 2010 and extends the maximum period of subsidized coverage from 9 to 15 months.  The amount of the subsidy (65% of COBRA premiums) has not changed.

The 2010 Act also changes the definition of an AEI to cover any qualified beneficiary who becomes eligible for COBRA continuation coverage due to an involuntary termination of a covered employee's employment between September 1, 2008 and February 28, 2010, and who timely elects COBRA coverage.  The revised definition clearly allows individuals who continue coverage under a plan until the end of the month in which they are involuntarily terminated to qualify for the subsidy, even if those individuals are terminated in February 2010 and are not eligible for COBRA coverage until March 1, 2010.

Transition Period

The 2010 Act creates a "transition period" for certain individuals who exhausted the 9 months of subsidized coverage originally granted under ARRA.  An individual is in a transition period if (1) the maximum number of months of subsidized coverage (generally 9) under ARRA were exhausted, (2) the individual would still have subsidized coverage under the extension (i.e., is in months 10 through 15), and (3) the individual otherwise remains eligible for the subsidy.

An individual who lost or dropped COBRA coverage due to exhaustion of the premium subsidy can pay subsidized premiums for retroactive coverage during the transition period.  These payments must be made by the later of (1) February 17, 2010, (2) 30 days after the Plan Administrator provides notice of the COBRA subsidy extension, or (3) the end of the applicable grace period (usually 30 days).  Individuals in a transition period who continued their COBRA coverage by paying the full premium are entitled to a refund or a credit against future payments.

For example, if an individual dropped coverage in December 2009 after exhausting the 9 months of subsidized COBRA coverage, and otherwise remains eligible for the subsidy, that individual may make retroactive payments for December by February 17, 2010, or 30 days after being provided with notice of the extension by the Plan Administrator, whichever event occurs later.  If the individual continued coverage through December by paying the full premium, a refund or credit against future payments for amounts over 35% of the premium must be given to the individual.

Notice Requirements

The COBRA subsidy extension also creates new notice requirements.  An updated General Notice must be provided to all qualified beneficiaries who experience any qualifying event from September 1, 2008 through February 28, 2010, and who have not already received a COBRA election notice.  This notice should contain information about the ARRA COBRA subsidy, the subsidy extension in the 2010 Act, and general COBRA election information.  For qualifying events occurring after December 19, 2009, this notice must be provided based on the normal time frame for providing COBRA election notices.

If an individual experiences a qualifying event prior to December 19, 2009 and received a General Notice that was not updated to include changes made by the 2010 Act, additional notice requirements must be fulfilled.  For individuals who were AEIs (experienced an involuntary termination from employment and timely elected COBRA coverage) as of October 31, 2009 and for individuals who experienced a termination of employment (voluntary or involuntary) on or after October 31, 2009 and lost health coverage, a Premium Assistance Extension Notice must be provided by February 17, 2010.  For individuals who are in a transition period (the period beginning immediately after exhaustion of the maximum number of months of subsidized COBRA coverage, and where the subsidy would continue to apply due to the extension to 15 months) the same Premium Assistance Extension Notice must be provided within 60 days of the first day of the individual's transition period.

There are some exceptions to the rules above.  Individuals who experienced a qualifying event other than a termination of employment between October 31, 2009 and December 19, 2009 do not need to be provided with any additional notice if those individuals received a General Notice based on the original provisions of ARRA.  Additionally, individuals who were terminated in December 2009 and were eligible for COBRA coverage beginning January 1, 2010 may have been treated as ineligible for the subsidy prior to the extension.  As such, they may not have received the correct information.  The U.S. Department of Labor (DOL) recommends providing such individuals with the updated General Notice and the full 60 days from the date the updated notice is provided to make a COBRA election.