New COBRA Subsidy Extension Requires Prompt Employer Action
As part of the Department of Defense Appropriations Act, 2010 (the Act), the limited COBRA subsidy (generally 65% of the cost of coverage) originally enacted as part of the American Recovery and Reinvestment Act (ARRA) has been extended from 9 to 15 months, and is now available for employees (and their eligible dependents) who lost or will lose coverage due to an involuntary termination of employment from September 1, 2008 through February 28, 2010 (rather than December 31, 2009). The Department of Labor has now issued three model notices for use by employers in implementing several new notice obligations imposed by the Act.
The model notices include updated General and Alternative Notices, each of which was discussed in our earlier advisory, to include information on the revised subsidy provisions. In addition, a new Premium Assistance Extension Notice (the Extension Notice), which explains the new 15-month subsidy period, has been created to supplement older General and Alternative Notices that may have previously been issued.
Employers should review the revised General Notice (or if state mini-COBRA applies, the revised Alternative Notice) and immediately incorporate the appropriate form into their ongoing COBRA election materials. The revised General Notice (or Alternative Notice, as applicable) should be distributed as soon as possible to all qualified beneficiaries (not just covered employees) who experienced any type of qualifying event on or after December 19, 2009 and who have not yet been provided an election notice. In addition, although there is some ambiguity in the Department of Labor guidance, the revised General Notice (or revised Alternative Notice, as applicable) apparently should also be sent to qualified beneficiaries who experienced a qualifying event that was a termination of employment and who were sent an election notice on or after December 19, 2009 that did not reflect the COBRA subsidy provisions as extended by the Act. Sending the revised notice will restart the COBRA 60‑day election period for anyone who had not previously received information about the revised subsidy and who had experienced a qualifying event due to termination of employment.
The Extension Notice should be distributed as follows:
- By February 17, 2010 to anyone who was receiving the COBRA subsidy as of October 31, 2009;
- By February 17, 2010 to anyone who experienced a COBRA qualifying event due to a termination of employment (whether voluntary or involuntary) on or after October 31, 2009 and before you begin using the revised General or Alternative Notice (you need not send both a revised General or Alternative Notice and an Extension Notice to the same qualified beneficiary); and
- For anyone affected, within 60 days of the first day of the “transition period” in order to notify them of their right to make a retroactive reduced premium payment.
An individual’s “transition period” begins immediately after their 9-month COBRA subsidy period lapses and ends when the individual is no longer eligible for the extended subsidy. That is, the Extension Notice must also be sent to anyone who was previously eligible for the COBRA subsidy and whose subsidy lapsed after the original 9-month period ended (even if they are no longer enrolled in COBRA). For individuals whose 9-month subsidy period ended on December 1, 2009, this means that the Extension Notice must be provided by January 30, 2010. In order to continue to receive the subsidy or reinstate any lapsed coverage, the individual must pay any subsidized premium due by the later of February 17, 2010 or 30 days after the Extension Notice is provided (unless the otherwise applicable 30-day grace period applies). If an individual continued to pay the cost of COBRA after the original 9-month subsidy period ended, they are entitled to a credit for future months of coverage or a reimbursement of the overpayment.
The COBRA subsidy credit continues to be claimed on an employer’s Form 941, generally for the quarter in which the COBRA subsidy is provided. For example, if an employer receives an assistance eligible individual’s subsidized premium payment for 2009 health insurance coverage in 2010, the COBRA subsidy credit should be claimed on a 2010 employment tax return and there is no need to report the subsidy credit on (or amend) 2009 employment tax returns.
Copies of the revised General and Alternative Notices as well as the new Extension Notice are available on the DOL Website.