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COBRA Subsidy Extension Bill Signed Into Law

March 5, 2010

On March 2, 2010, President Obama signed into law the Temporary Extension Act of 2010. Among other things, the Act extends the eligibility period for terminated employees (or their qualified beneficiaries) to obtain subsidized group health continuation coverage initially provided by the American Recovery and Reinvestment Act of 2009 (ARRA). This is the second extension of the COBRA subsidy provided by the ARRA. Under this new legislation, an employee (or his/her qualified beneficiary) terminated prior to March 31, 2010, will be entitled to the subsidized COBRA rates, provided the employee’s earnings were below certain established income thresholds.

The ARRA, passed in February 2009, provided that individuals (and their qualified dependents) involuntarily terminated from employment during the period from September 1, 2008, to December 31, 2009, would only be required to pay only 35% of the cost of the monthly premium to continue participation in the employer group health care plan for a period of up to nine months. In December 2009, the ARRA was amended by the Department of Defense Act (DODA), which extended the period during which the employee and his/her dependents are eligible for the COBRA subsidy until February 28, 2010. The DODA also extended the period of time for which such individuals would be eligible for the 65% subsidy from nine months to 15 months.

In addition to extending the ARRA subsidy to qualified individuals involuntarily terminated on or before March 31, 2010, this new law will also permit an individual and his/her qualified beneficiaries to receive the subsidy if group coverage was first lost due to a reduction in hours, and then the employee was later terminated after enactment of the legislation. Until the enactment of this new law, the only qualifying event under COBRA that entitled an individual to the 65% subsidy was involuntary termination of employment. However, the Temporary Extension Act now permits individuals who lost coverage due to a reduction in hours during the September 1, 2008, through March 31, 2010, period and who were or will be terminated after March 2, 2010, to receive the subsidy. For example, if an employee’s hours were reduced in December 2009, causing the employee (and his/her qualified beneficiaries) to lose group health coverage, and the employee was later terminated on March 15, 2010, the employee (and his/her qualified beneficiaries) will be eligible for the COBRA subsidy.

The Temporary Extension Act not only provides a one-month extension for COBRA subsidy eligibility, but also affects other federal programs established in the wake of the economic downturn. Specifically, the Act provides for an extension of the number of weeks qualified individuals can receive federal unemployment compensation after the expiration of state benefits as well as an extension of the Highway Trust Fund, which pays for the ongoing transportation projects nationwide to encourage economic growth. Likewise, the Act provides extensions of the national flood insurance programs, the Small Business Association loan guarantee program and the 2009 poverty guidelines.

This new law is considered to be only a temporary extension of these benefits and programs. In fact, the Senate is currently debating a more comprehensive bill that would extend the 65% COBRA subsidy and the federal unemployment benefits through December 31, 2010.

As a consequence of this new legislation, employers must provide any individual involuntarily terminated after February 28, 2010, with the appropriate COBRA notices as prescribed by law. Such form notices may be obtained through the U.S. Department of Labor’s website.