Employer-Paid Mandatory Cobra Subsidy Extended and Enlarged

By Ronald G. Guerra

Christmas came early this year — at a potentially significant cost to employers — for some involuntarily terminated employees receiving COBRA subsidy benefits. On Monday, December 21, 2009, President Obama signed into law the Department of Defense Appropriations Act (DDAA), which included an extension to the employer-paid COBRA subsidy that was a part of the American Recovery and Reinvestment Act of 2009 (ARRA).

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is generally well-known by employers and employees. COBRA provides a procedure for employees suffering a "qualifying event" to purchase continued health care coverage through an employer-provided plan. COBRA allowed qualifying employees to pay 100 percent of the cost of the health care coverage and up to an additional two percent administrative fee to continue coverage under an employer-provided health care plan.

Under ARRA, a new class of COBRA eligibility was created and identified as an Assistance Eligible Individual (AEI). An Assistance Eligible Individual (AEI) was any employee who was involuntarily terminated between September 1, 2008 and December 31, 2009. For all AEIs, employers are required to subsidize 65 percent of the employee portion of the COBRA health care coverage cost, while employees pay the remaining 35 percent cost for a nine-month period. It also provided that employees who could be defined as an AEI and that had previously rejected COBRA continuation benefits would have another opportunity to select continuation coverage under the subsidy program.

With the DDAA now signed into law, the COBRA subsidy has been enlarged and extended, along with the former employer's potential financial liability. The DDAA specifically:

• Expands the ARRA's COBRA 65 percent employer-paid subsidy period from nine to 15 months.
• Extends the eligibility for the COBRA subsidy until February 28, 2010.
• Allows for a 60-day retroactive period for payment of COBRA premiums for AEIs whose coverage expired on November 30, 2009.
• Requires an additional notification to AEIs who were eligible at any time on or after October 31, 2009, regarding the changes to the ARRA COBRA subsidy.
• Clarifies that the ARRA COBRA subsidy program eligibility and notice are based on the timing of the qualifying event.

To comply with the new changes, employers should:

• Ensure that appropriate notices are sent to all affected AEIs.
• Notify appropriate payroll personnel regarding the new eligibility and coverage periods to ensure proper application for the credit for offering the COBRA subsidy.
• Notify appropriate human resource personnel to ensure appropriate communication with current employees facing involuntary termination about COBRA options and the subsidy.

The COBRA Subsidy Extension and Enhancement Act of 2009 was introduced in the United States Senate on November 4, 2009. If passed and signed into law this act would amend the ARRA COBRA subsidy and extend eligibility to December 31, 2010. The new act is presently in committee and no similar bill is pending in the House of Representatives. Continue to watch for updates to ensure compliance with COBRA.

Published December 24, 2009

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

BACK TO TOP | BACK TO ARTICLE INDEX | PRINTER-FRIENDLY PAGE