Update on COBRA Subsidy Extension

By Mindy Dale and Bill Milne

On March 2, 2010, the Temporary Extension Act of 2010 (the “Act”) was signed into law. The Act extended the eligibility period for the COBRA premium subsidy to March 31, 2010.
(Remember, in December, 2009, the subsidy eligibility period was extended to the end of
February.) The Act also made some important clarifications to the COBRA subsidy rules.
Highlights of the Act are summarized below.

  • The subsidy eligibility period is extended to March 31, 2010. Therefore, someone
    who is involuntarily terminated prior to the end of March may still qualify for the premium subsidy.
  • The Act addresses concerns regarding an employee who had hours reduced, but did not make timely COBRA continuation election (or made an election, but dropped coverage), and is eventually involuntarily terminated. Under pre-Act law, this person would not have qualified for the COBRA premium subsidy, because the COBRA qualifying event was the reduction in hours, not termination. Now, the subsidy is available to an employee who experiences any reduction in hours on or after September 1, 2008, that results in a loss of coverage, followed by an involuntary termination between March 2 and March 31, 2010.
  • Also, an employee who is now eligible for the COBRA premium subsidy, because of a reduction in hours followed by an involuntary termination (between March 2 and March 31), but who did not elect continuation coverage at the time hours were reduced, or elected and dropped coverage, is entitled to a new election period. Plan administrators must provide an additional notice informing these employees that the premium subsidy is now available to them; the notice must be given during the 60-day period that begins on the date the employees are
    involuntarily terminated.
  • A newly eligible employee can qualify for the subsidy once involuntarily terminated; however, the 18-month COBRA continuation period will start from the date of the employee’s reduction in hours – the original 18-month COBRA continuation period is not extended. Also, a qualifying employee will not be required to make a payment for continuation coverage for the period between the reduction in hours and involuntary termination.
  • Also, for the purposes of applying the premium subsidy, the Act clarifies that an employer’s determination that a qualifying event has occurred will be “deemed” an involuntary termination if the determination is based on a reasonable interpretation of the premium subsidy rules and the employer maintains supporting documentation supporting its determination. The purpose of this change is to minimize the risk of payroll tax liabilities for an incorrect determination that the premium subsidy applies.

Based on these changes, plan administrators should identify and notify employees who lost
coverage due to a reduction in hours on or after September 1, 2008 and who are then
involuntarily terminated between March 2 and March 31, 2010; update COBRA election notices to reflect the subsidy eligibility expiration date of March 31, 2010; and, if not doing so already, retain supporting documentation for approved premium subsidy applications.

Finally, plan administrators may want to keep in mind that there are bills currently being
considered by Congress that would further extend the premium subsidy eligibility period.
Therefore, at least based on recent history, the subsidy eligibility period may very well be
extended again, possibly to the end of 2010, and plan administrators may want to watch for future changes.

This article is intended for general informational purposes only, and should not be construed as legal advice. Always contact your legal counsel for advice or answers to your questions.

Weld Riley, S.C. was founded in 1991. The firm consists of lawyers across four offices (Eau Claire, Menomonie, Wausau and Black River Falls) and offers a full range of legal services, including labor and employment, business law, estate planning, tax representation, municipal law, mining and mineral rights, environmental law, banking and creditor rights, civil litigation, criminal defense, immigration, and family law.