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UPDATE – COBRA Subsidy: New Extension Through March 31, 2010

As we reported in our Client Alert of December 24, 2009 (“UPDATE: COBRA Subsidy: What it Means for Employers Now“), President Obama signed into law the Department of Defense Appropriations Act, 2010 (the “Defense Appropriations Act”), which, among other things, extended and expanded certain provisions of the American Recovery and Reinvestment Act of 2009 (“ARRA”) pertaining to premium assistance for benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). The Defense Appropriations Act extended the COBRA premium subsidy program for assistance-eligible individuals who became eligible for COBRA from the period that began September 1, 2008, and ended on December 31, 2009, to the period that ended on February 28, 2010.

On March 2, 2010, President Obama signed into law the Temporary Extension Act of 2010 (the “Act”). The Act extends the 15-month COBRA premium subsidy program for an additional 31 days. Thus, this extension will provide the COBRA premium subsidy for eligible individuals who are involuntarily terminated from employment through March 31, 2010. Congress is currently considering another bill, H.R. 4213, the Tax Extenders Act of 2009, which would extend the COBRA premium subsidy program through the end of 2010.

The Act also expands the application of the premium subsidy to individuals who had a reduction of hours of employment (occurring from September 1, 2008, through March 31, 2010), followed by an involuntary termination that occurs on or after March 2, 2010 and before April 1, 2010. These individuals are eligible for the premium subsidy on a prospective basis, whether or not they made an election of COBRA coverage on the basis of the reduction of hours of employment. In such cases, the involuntary termination of employment is treated as the qualifying event for purposes of obtaining the subsidy. However, pursuant to the Act, the maximum duration of the COBRA period is determined as if the qualifying event were the reduction of hours of employment. Any of these individuals who have these new election rights are not required to make payments for any continuation coverage between the reduction of hours and the involuntary termination of employment. It is not clear whether the intent of the legislation is also to allow an eligible individual to elect retroactive (unsubsidized) coverage as of the date of the reduction of hours of employment. Administrators of group health plans will now have additional notice requirements with respect to individuals who are COBRA assistance-eligible under this new rule.

The Act also includes clarification regarding an employer’s determination as to whether an employee’s termination was involuntary. The Act provides that, for purposes of the COBRA subsidy rules, a termination of employment shall be deemed to be an involuntary termination, provided that (i) the employer determines that such termination is an involuntary termination based on a reasonable interpretation of ARRA and the administrative guidance thereunder, and (ii) the employer maintains supporting documentation of the determination, including an attestation by the employer of involuntary termination.

The Department of Labor Employee Benefits Security Administration has updated the introduction on its COBRA Web page (www.dol.gov/COBRA) to reflect the Act and is in the process of updating the fact sheet, frequently asked questions and other materials on the COBRA Web page. Additional guidance is anticipated.

For more information about this Client Alert, please contact:

Joan A. Disler
(973) 642-1900
Michelle Capezza
New York
(212) 351-4774
Jason M. Rothschild
New York
(212) 351-4629