LEGISLATION UPDATE 12-23-09

President Signs COBRA Subsidy Extension Legislation

Congress approved legislation over the weekend extending the federal subsidy of COBRA health insurance premiums and President Barack Obama signed it into law Monday afternoon.

These extensions are especially welcome news for those who continue to struggle with unemployment during these tough economic times.  Meanwhile, managing and incorporating these changes will pose additional challenges for employers, especially employers who have not outsourced their COBRA administration to a third-party administrator.

Earlier this year, in response to the poor economic conditions, the American Recovery and Reinvestment Act of 2009 established a new law under which "assistance-eligible individuals" (AEIs) were initially entitled to receive a 65-percent subsidy for continuation coverage premiums for up to nine months. Under the original law, an AEI is any COBRA qualified beneficiary who elects COBRA coverage and: (1) has a loss of group health coverage as a result of an involuntary termination of employment (other than gross misconduct); and (2) has a qualifying event between Sept. 1, 2008, and Dec. 31, 2009, is otherwise eligible for COBRA coverage during that period and elects that coverage. The law included various new administrative and notice requirements for employers, many of which had to be met within a short period after ARRA was enacted.

Although the ARRA subsidy was supposed to be a short-term fix, as the economy's rebound became more protracted than expected, in late fall lawmakers begin considering proposals to extend the law and earlier this month, President Obama called for an extension. At least three proposals were introduced - one simply extended the eligibility period by six months, the other two proposals both extended the eligibility period and made further tweaks to the subsidy law provisions

Following are the key provisions of the COBRA subsidy extension:

• Extends the premium subsidy eligibility period by two months, so that it would end on February 28, 2010, rather than December 31, 2009.


• Extends the period of the 65 percent COBRA subsidy from nine months to 15 months.


• Establishes a transition period that applies to individuals who lost subsidies before the effective date of the Act because they received the maximum number of months of subsidies under the original subsidy provisions.


• Establishes new notification requirements by group health plans or other entities.


• Clarifies that eligibility and notice requirements for the subsidy are based on eligibility for COBRA due to loss of coverage because of qualifying event (involuntary termination of employment), both of which must occur during the eligibility period.


• Becomes effective as if included in the original COBRA subsidy provisions of the American Recovery and Reinvestment Act.

Further Evaluation Under Way

Evaluation of the extension and all the requirements, time frames, notifications, and details about retroactive premium payments is under way and more information will be coming as soon as it is available.

Several other bills are pending in both the United States House of Representatives and the Senate that would further extend the premium subsidy or make other changes to the current law or these newly passed provisions. They are also being watching closely for impact.

We will continue to keep you updated as more information becomes available.