COBRA Premium Subsidy Extended

On December 19, 2009 President Obama signed into law the the Department of Defense (DOD) Appropriations Act, 2010 which includes provisions extending the COBRA premium subsidy that was enacted as part of the American Recovery and Reinvestment Act (ARRA) of 2009.

Under ARRA, individuals are eligible for the 65% COBRA premium subsidy for up to 9 months if they lose group health plan coverage because because of involuntary termination of employment between September 1, 2008, and December 31, 2009, elect COBRA coverage, and pay 35% of the full COBRA monthly premiums.

The DOD Appropriations Act makes three important changes:

1. It extends the deadline for the involuntary termination of employment to February 28, 2010.
2. It clarifies that eligibility for the subsidy is based on the date of the qualifying event (i.e., employment termination), not the date the individual becomes eligible for COBRA continuation coverage.
3 It extends the maximum eligibility from 9 to 15 months, both for those who became or become eligible by December 31, 2009 and for those who become eligible by February 28, 2010.

The DOD Appropriations Act also includes transitional provisions protecting those individuals whose eligibility for the premium subsidy expired before the extension (e.g., individuals whose period of eligibility began on March 1 and ended on November 30) and requiring group health plan administrator to notify them of their retroactive eligibility for the subsidy.

For employers, the extensions of COBRA premium subsidy eligibility mean that they will be filing Forms 941 claiming the employment tax credit for the 65% past IRS's originally expected end-point of the fourth quarter of 2010.