New DOD Act Extends COBRA Subsidy

In the March 2009 edition of “Real Workplace Issues,” we highlighted the American Recovery and Reinvestment Act of 2009 (the “Stimulus Act”), which created a temporary nine (9)-month government subsidy of 65% of the COBRA continuation health coverage premiums for employees involuntarily terminated between September 1, 2008 and December 31, 2009. For most plans, that subsidy took effect on March 1, 2009 and expired on November 30, 2009.

However, on December 19, 2009, legislation was enacted as part of the Department of Defense Appropriations Act for Fiscal Year 2010 (the “DOD Act”) that extends both the duration and eligibility period for the Stimulus Act’s 65% COBRA premium subsidy. The following are some key highlights of the DOD Act, which is effective as of February 17, 2009 (the same date as the Stimulus Act):

1. COBRA Subsidy Eligibility Period Extended Two (2) Months to February 28, 2010. The DOD Act extends the COBRA premium subsidy eligibility period for an additional two (2) months, and therefore it would apply for involuntary terminations through February 28, 2010, rather than Dec. 31, 2009. (Note that there is currently legislation proposed that would further extend the COBRA eligibility period for the subsidy to June 30, 2010.)
2. COBRA Subsidy Duration Extended for Six (6) Additional Months (for Total of 15 Months).The DOD Act also extends the duration of the premium subsidy for an additional six (6) months. The total duration of the subsidy will therefore be 15 months rather than nine (9) months. This applies to all involuntary terminations between September 1, 2008 and February 28, 2010 where COBRA is elected. (Note that the phase-out of the subsidy for high-income individuals remains unchanged. The subsidy is phased-out for single filers with an adjusted gross income of between $125,000 and $145,000, or for joint filers with an adjusted gross income of between $250,000 and $290,000.)
3. Retroactive Payment for Transition Period. With respect to the transition period, the DOD Act allows retroactive payment for the COBRA coverage through February 17, 2010 (i.e., 60 days after enactment), or if later within 30 days after receipt of notice of the subsidy extension. The premium must include the period from when the COBRA coverage was originally lost (and, if applicable, health coverage will be reinstated retroactively). The “transition period” is the period from when the COBRA subsidy would have ended and the enactment of the extension in the DOD Act.
4. Refund or Credit for Overpayments. Overpayments of premiums for the transition period shall be reimbursed or applied toward future payments.
5. Notice Requirement. Notification of the amendments made to the COBRA subsidy by the DOD Act within 60 days after enactment (i.e., by February 17, 2010) is required for individuals who were eligible for the COBRA subsidy on or after October 31, 2009 or experienced a termination qualifying event on or after such date. Eligible individuals who lost the subsidy because they did not timely pay for continued COBRA must be notified of their ability to make retroactive payment for the transition period. Updated Model Notices, as well updated Premium Reduction Fact Sheets, can be found at www.dol.gov/ebsa/COBRA.html.
6. Clarification that Eligibility for COBRA Subsidy is Tied to Date of Qualifying Event. The DOD Act provides that eligibility for purposes of the COBRA subsidy does not depend on the loss of coverage but rather the date of the qualifying event. Thus, if a termination qualifying event occurs on February of 2010 but the individual does not lose coverage until March 1, 2010, the beneficiary is entitled to the COBRA subsidy even though the loss of coverage did not occur until March 1, 2010.
7.  Applicability to New York State Mini-COBRA. New York is one of approximately 40 states that have continuation health coverage requirements for insured group health plans that apply to small employers with at least two (2) employees who do not meet the 20-employee threshold needed to trigger Federal COBRA.The 15-month, 65% COBRA subsidy applies to New York State Mini-COBRA rules. In addition, New York State recently extended its mini-COBRA continuation health coverage to 36 months. Thus, there could be 15 months of subsidized COBRA and an additional 21 months of non-subsidized Federal or state COBRA. For more information on New York State Mini-COBRA and the COBRA subsidy in general, visit Charles Shulman, Esq.’s website at www.ebeclaw.com.