Revised March 10, 2010 — Is the third time the “charm”?
COBRA Premium Subsidy Extended For Second Time
(originally issued March 5, 2010)
The Temporary Extension Act of 2010 (the “Extension Act”), passed by Congress and signed into law by the President, includes amendments to the COBRA premium subsidy provisions of the American Recovery and Reinvestment Act of 2009 (“ARRA”), as amended by the Department of Defense Appropriations Act of 2010 (the “DOD Act”). The Act builds upon ARRA and the DOD Act. For a more detailed discussion of ARRA (e.g., definition of assistance eligible individual, description of subsidy, etc.), see our Alert dated February 23, 2009: http://www.hitesmanlaw.com/news_events/alert_090223.shtml). For a more detailed discussion of the amendments to ARRA made by the DOD Act, see our Alert dated December 29, 2009: http://www.hitesmanlaw.com/news_events/alert_091229.shtml.
Changes To ARRA’s COBRA Premium Subsidy
In general, ARRA provides certain individuals who have lost health coverage due to an involuntarily termination of employment with an opportunity to continue health coverage at a much reduced (i.e., subsidized) rate. The Extension Act amends the following key areas regarding the ARRA COBRA premium subsidy:
- Eligibility Extended. The Extension Act extends the subsidy eligibility period end date from February 28, 2010, to March 31, 2010. Now, in order to be considered eligible for the premium subsidy, a person must have experienced an involuntary termination of employment (1) on or after September 1, 2008, and (2) on or before March 31, 2010 (hereafter referred to as the “premium subsidy eligibility period”).
Operational Issue: Election notices indicating the premium subsidy eligibility period ends on February 28, 2010, are no longer accurate. See Immediate Action Items below.
- Eligibility Clarification. The Extension Act also “clarifies” that eligibility for the premium subsidy extends to certain individuals who have experienced a reduction in hours qualifying event. Prior to the clarification, to be eligible for the premium subsidy, the qualifying event had to be an involuntary termination of employment. If an employee experienced a reduction in hours (e.g., a reduction to part-time or a leave of absence) that caused a loss of coverage, the individuals losing coverage as a result of the reduction in hours were not assistance eligible individuals. Furthermore, they could not become assistance eligible individuals if the employee subsequently experienced an involuntary termination of employment (unless the involuntary termination of employment constituted an independent qualifying event).
Pursuant to the Extension Act “clarification”, effective for periods of coverage beginning after March 2, 2010 (i.e., the date on which the Extension Act was enacted), an individual may be entitled to the premium subsidy if the qualifying event consisted of a reduction in hours during the premium subsidy eligibility period followed by an involuntary termination of employment occurring on or after March 2, 2010. Although language in the Extension Act is not entirely clear on this point, it appears the involuntary termination of employment must also occur during the premium subsidy eligibility period (i.e., the involuntary termination of employment must occur on or before March 31, 2010). [Note, this interpretation is consistent with information contained on the Department of Labor’s website.]
Individuals who experienced a reduction in hours and (1) did not elect COBRA continuation coverage, or (2) elected but then discontinued COBRA continuation coverage prior to the maximum coverage period, will have a second opportunity to elect COBRA continuation coverage upon the subsequent involuntary termination of employment occurring on or after March 2, 2010. The Extension Act provides that for purposes of making an election, the involuntary termination of employment is treated as a qualifying event. But for purposes of measuring the maximum COBRA coverage period, the original reduction in hours is the qualifying event. Any gap in coverage from the reduction in hours qualifying event and the involuntary termination of employment qualifying event cannot be counted for purposes of determining whether the individual had a 63-day gap in creditable coverage for purpose of HIPAA’s preexisting condition exclusion requirements.
The Extension Act indicates that individuals in this situation cannot be required to pay for COBRA continuation coverage for the interim period between the reduction in hours and the involuntary termination of employment. Our understanding is this provision prohibits a plan from conditioning the special election of continuation coverage authorized by the Extension Act (i.e., at the time of the subsequent involuntary termination of employment) upon payment of premiums for the interim period, if the individual had not otherwise elected continuation coverage for that period. Nothing in the Extension Act authorizes or requires the plan to reinstate coverage for the interim period and the individual likely would not be able to obtain coverage for the interim period unless the original COBRA election period has not expired at the time of the involuntary termination of employment.
Example 1: An employee changes from full-time to part-time employment effective December 15, 2009, and, as a result, loses coverage under the employer’s medical plan effective January 1, 2010. The employee is not entitled to the COBRA premium subsidy at that time, but nevertheless elects COBRA continuation coverage. Subsequently, on March 15, 2010, while the COBRA coverage is in place, the employee experiences an involuntary termination of employment. The former employee is eligible for the premium subsidy beginning with the first period of coverage on or after March 2, 2010 (i.e., April, 2010). The premium subsidy is available for up to 15 months. In this case, the premium subsidy will expire coincident with the expiration of the individual’s COBRA coverage at the end of June, 2011.
Example 2: An employee changes from full-time to part-time employment effective October 15, 2009, and, as a result, loses coverage under the employer’s medical plan effective November 1, 2009. The employee is not entitled to the COBRA premium subsidy at that time and does not elect COBRA continuation coverage. Subsequently, on March 15, 2010, the employee experiences an involuntary termination of employment. The employee then elects COBRA continuation coverage under the special rules in the Extension Act. The 18-month COBRA period begins to run on November 1, 2009, and will last potentially through April, 2011. However, the actual COBRA coverage begins on March 16, 2010. The former employee is eligible for the premium subsidy beginning March 16, 2010. Generally, the premium subsidy is available for 15 months. However, in this case, the maximum COBRA period will expire before the subsidy expires, so the employee will not receive the full 15 months of the subsidy.
The Extension Act requires notice be provided to individuals eligible for the subsidy under these special rules. That notice must describe the individual’s rights to the subsidy and must be provided within 60 days following the individual’s involuntary termination of employment.
Immediate Action Items
In light of the most recent round of changes to the COBRA premium subsidy law, employers sponsoring group health plans (and/or the third party administrators providing continuation services) should immediately consider the following actions:
- Regarding persons who experience a qualifying event on or after March 1, 2010, revise the portion of the COBRA election notice describing the premium subsidy to reflect the further extended premium eligibility period.
- Regarding persons who experienced a reduction in hours qualifying event on or after September 1, 2008, and on or before March 31, 2010, make arrangements to implement continuation coverage changes, including:
- Identification of such reduction in hours employees who then experience an involuntary termination of employment on or after March 2, 2010.
- Provision of COBRA notifications to the reduction in hours employees identified above.
- Reinstatement of coverage if they elect continuation coverage, even if they did not originally elect COBRA continuation coverage or elected it and allowed it to lapse.
WARNING: Watch for additional changes in the next couple months. Legislation is pending to extend the premium subsidy eligibility period even further through the end of 2010.
Please contact us if you have any questions regarding the requirements, or if you need our assistance with any of the foregoing action items.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.