COBRA Extension: A Washington TEA Party

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On March 2 President Obama signed into law the Temporary Extension Act of 2010 (TEA), which includes provisions extending and amending the premium assistance available for COBRA coverage under the American Recovery and Reinvestment Act of 2009 (ARRA) as amended by the Department of Defense Appropriations Act, 2010 (DOD Act). Here are the provisions in TEA:

Eligibility Period Extended to March 31

The eligibility period for premium assistance has been extended from February 28 to March 31, 2010. Thus, an individual who is eligible for COBRA because of an involuntary termination that occurs during the period from September 1, 2008 through March 31, 2010 will be eligible for premium assistance.

Note: As previously amended by the DOD Act, an individual may qualify for premium assistance if he or she loses coverage after the March 31, 2010 deadline, as long as his or her involuntary termination occurs before
March 31, 2010.

New Eligibility for Individuals Who Lost Coverage Because of a Reduction in Hours Followed by an
Involuntary Termination

TEA extends the subsidy to qualified beneficiaries who are eligible for COBRA because of a reduction in hours of employment that is later followed by an involuntary termination. To qualify for premium assistance for up to 15 months, such an individual must have:

  • Become eligible for COBRA because of a reduction of hours of employment that occurs between September 1, 2008, and March 31, 2010 (Note: An individual may qualify for the subsidy even if he or she did not elect, or elected and later discontinued, COBRA coverage following the reduction in hours of employment); and
  • Been involuntarily terminated between March 2, 2010, and March 31, 2010 (as stated in the COBRA section of the Department of Labor’s Employee Benefits Security Administration website).

TEA requires plans to provide such individuals with a notice of their right to the subsidy and the right to elect COBRA or reinstate COBRA if it was discontinued prior to the involuntary termination. The plan must provide such notice and election rights during the 60-day period beginning on the date of the individual’s involuntary termination. If COBRA is elected or reinstated, a plan may not:

  • Require the individual to pay any of the COBRA premi¬ums due during the period between the reduction of hours and the involuntary termination of employment; or
  • Apply any preexisting condition exclusion.

While TEA is not entirely clear, it appears that COBRA coverage and the subsidy must commence no later than the first day of the period of COBRA coverage that immediately follows the involuntary termination. For plans that administer COBRA on a monthly basis, COBRA coverage and the subsidy would be available as of April 1, 2010 with respect to an involuntary termination that occurs in mid-March. For plans that administer COBRA on a daily basis, COBRA coverage and the subsidy would presumably be available as of the day that follows the involuntary termination.

Furthermore, while TEA now treats an individual’s subsequent involuntary termination as a “qualifying event” for premium assistance purposes, the involuntary termination does not extend the maximum COBRA coverage period available to the individual (i.e., the involuntary termination is not considered a “second qualifying event” for coverage extension purposes).

This means that, absent the occurrence of a second qualifying event like a divorce or loss of dependent status, the maximum COBRA coverage period available to such an individual is the 18-month period measured from the date coverage was lost because of the reduction of hours per the terms of the plan.

15-Month Subsidy Period Measured from the Day Subsidies Begin

Under ARRA and the DOD Act, the subsidy period was measured from the first day of the month that the individual began receiving the subsidy. TEA amends ARRA so that the subsidy period is measured from the first day that the individual receives the subsidy. Plans that begin COBRA coverage mid-month or require that COBRA premiums be paid weekly will have to monitor the dates of their assistance eligible individuals more closely. This provision is effective as of March 2, 2010.

New $110 Per Day Penalty for Failing to Comply with DOL’s Appeal Determinations

Under ARRA, individuals may file an expedited appeal with the Department of Labor if the plan denies their request for premium assistance. If the Department of Labor determines that an individual is eligible for premium assistance on appeal and the plan sponsor (or health insurance issuers with respect to state mini-COBRA laws) fails to administer the subsidy in favor of the individual, the Secretary of Labor may assess penalties of up to $110 per day on the plan sponsor (or health insurance issuer). To avoid the penalty, plans must comply within ten days of receiving the Department of Labor’s determination. Plan sponsors and health insurance issuers may also face civil suits by affected individuals, or the Secretaries of the Treasury, Labor or Health and Human Services, as applicable, for failing to comply with the Department of Labor’s appeal determinations. These penalty and enforcement provisions are effective as of March 2, 2010.

Employer Attestation of Involuntary Termination Sufficient for Payroll Tax Credit

Since the COBRA subsidy originally began under ARRA, it has been the employer’s initial responsibility to determine if the former employee’s qualifying event was an “involuntarily termination” for purposes of administering the subsidy and the related payroll tax credit that can be claimed on the employer’s Form 941. TEA clarifies that if an employer reasonably determines that the employee was involuntarily terminated, and the employer maintains documentation to support that determination, the qualifying event is deemed to be the employee’s involuntary termination. Thus it appears that plan sponsors, like multiemployer plans, are not required to investigate the termination status of individuals who apply for the subsidy. Such plans can rely on the reasonable determinations of employers in administering the subsidy, and in applying for the related credit. This provision is effective as of the date of ARRA’s enactment, February 17, 2009.

Further Extensions Are Expected

Currently, Congress is considering bills that would further extend the subsidy. One bill (SA 3336, the substitute amendment for H.R. 4213) proposed by Senator Baucus, and supported by President Obama, would extend eligibility for the subsidy to involuntary terminations through December 31, 2010. We will provide future updates on the status of any further extensions.

No other changes were made to COBRA or to the subsidy. While TEA does not specifically require the Department of Labor or IRS to issue any guidance on the implementation of the premium assistance provisions of TEA, we hope that the agencies issue further guidance on TEA’s new requirements as they have done following the enactment of ARRA and the DOD Act. In the meantime, plan sponsors may wish to:

  • Prepare a new COBRA notice for those employees who lost coverage because of a reduction of hours of employment during the period from September 1, 2008, through March 31, 2010, and who are involuntarily terminated during the period from March 2, 2010, through March 31, 2010; and 
  • Amend existing COBRA notices to reflect the new March 31, 2010, involuntary termination deadline to receive premium assistance.

Hedley Lawson, Contributing Editor