COBRA Update - January 2010

On December 19, 2009, President Obama signed into law legislation extending the COBRA premium subsidy originally passed in February 2009.  The following are the key changes contained in the COBRA subsidy extension:

1.    The amount of time an Assistance Eligible Individual can receive a 35% premium subsidy increases from nine (9) to fifteen (15) months.  An “Assistance Eligible Individual” is someone who experienced a “Qualifying Event” (involuntary termination from employment other than for gross misconduct) between September 1, 2008 and February 28, 2010, and who is eligible for and timely elects COBRA coverage.  Thus, the subsidy eligibility period still begins on September 1, 2008, but has been expanded to end on February 28, 2010 (formerly December 31, 2009).
 
2.    The new rule provides that as long as the Qualifying Event, which is the basis for the individual’s COBRA eligibility, occurs by February 28, 2010, the individual will be eligible for the COBRA subsidy.  This is a significant change from the original rule, which required that the individual had to experience the Qualifying Event and become COBRA eligible and actually elect COBRA, all by the end of the original eligibility period (December 31, 2009).
 
3.    The new rule also grants individuals, who reached the end of their nine (9) month subsidy eligibility before December 19, 2009 when this legislation extended it to fifteen (15) months, an extension of their grace period to pay the reduced premium. To continue coverage, Assistance Eligible Individuals must pay the 35% reduced premium cost by the latter of February 17, 2010, or thirty (30) days after their plan administrator provides notice of the extension.  (See notice rules in # 5.)

4.    Individuals, who ended their subsidy eligibility and continued COBRA coverage by paying the full 100% (or 102%) premium through December 2009, are eligible to receive credit towards future months of coverage at the 35% rate or reimbursement of the overpayment.

5.    Plan administrators must provide a notice of the new rules to all Assistance Eligible Individuals as part of their standard COBRA election notice.  In addition, plan administrators must provide notice about the changes in the subsidy to individuals who previously received a COBRA election notice, as follows:

(a)    Assistance Eligible Individuals must be given the notice by February 17, 2010;

(b)    Individuals who experience a Qualifying Event on or after October 31, 2009 and lose health coverage, must be given the notice within the standard COBRA notification time frame (forty-four (44) days following the Qualifying Event); and

(c)    Individuals whose nine (9) month subsidy eligibility period ended before December 19, 2009, and who would qualify for the subsidy under the new fifteen (15) months rule, must be given notice within sixty (60) days following the date their subsidy eligibility originally ended.

6.    The cost of the 65% premium reduction continues to be reimbursable to employers, insurers and health plans as a credit against certain employment taxes.

7.    Any Assistance Eligible Individual, who has an adjusted gross income of more than $145,000 (or $290,000 for joint filers) for any tax year in which he/she received the subsidy, must repay the amount of the premium reduction received.  Assistance Eligible Individuals with an adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), must repay a pro-rata portion of the premium reduction he/she received during that tax year.  Assistance Eligible Individuals with high incomes may permanently waive the right to premium reduction, but may not obtain the premium reduction later, if their adjusted gross income ends up below the limits.

For additional information on this topic, please contact Douglas S. Zucker at DSZ@zuckerhatfield.com, or Kathryn V. Hatfield at KVH@zuckerhatfield.com.