January 7, 2010

COBRA Subsidy Extended

Congress has given plan administrators and COBRA continuees a Christmas present in the form of extending the COBRA subsidy that is part of theDepartment of Defense Appropriations Act of 2010 (“DOD Act”, HR 3326).  President Obama signed this Act on December 19, 2009. 

In summary, as part of the American Recovery and Reinvestment Act of 2009, an individual involuntarily terminated from employment and who meets other requirements is eligible for a COBRA subsidy, pursuant to which an individual is only required to pay 35% of the COBRA premium.  The DOD Act extends the COBRA subsidy as follows:

  • For subsidy eligible individuals, the COBRA premium amount remains 35%.
  • The durationof the subsidy is extended from 9 months to 15 months.
  • The COBRA subsidy qualifying period is extended from December 31, 2009 to February 28, 2010.   This means that the qualifying event must occur on or before February 28, 2010.
  • Individuals who have exhausted the subsidy prior to the law’s enactment (December 19, 2009) will be given a chance to re-qualify retroactive to the date their subsidy entitlement expired.
  • For those who have paid the full cost of COBRA, the excess will either be refunded, or credited toward future premium.
  • Individuals whose subsidy eligible coverage has lapsed will have 60 days from the law’s effective date, or, 30 days from the date the notice explaining this right is given, whichever is later, to re-establish entitlement to the subsidy and pay for the coverage.

Notice Requirement

Plans are obligated to send a notice to affected individuals explaining the COBRA subsidy extension.  This notice must be provided to those whose qualifying event occurs on or after October 31, 2009, as well as to those whose subsidy eligibility has lapsed during this period. This notice must be sent within 60 days of the law’s enactment.  

For individuals whose qualifying event occurs on or after December 19, 2009, the general COBRA time frames for providing qualifying event notices must be followed.

The DOL is working on updating its model notices; specifically, they are working on three notices:

  • A General Notice to be used for qualifying events occurring between December 19, 2009 and February 28, 2010;
  • An Alternative Notice to be used by small plans subject to State insurance law; and
  • A Premium Assistance Extension Notice.

These notices have not yet been finalized, but to view the works in progress, click here.  TheDOL has, however, provided an overview of the COBRA subsidy extension in the form of arevised Fact Sheet:COBRA Premium Reduction, a revised poster, a job loss flyer, as well as issued new FAQs for employees.

Other revised COBRA extension guidance references:

  • The Department of Health and Human Services revised itsOverview of COBRA subsidy.
  • The Internal Revenue Service has revised two areas of their COBRA subsidy information:
    1. The extension reference was added to the IRS title page,COBRA Health Insurance Continuation Premium Subsidy
    2. A revised FAQ relating to Form Preparation: Small employers may claim the COBRA credit on the Form 944, Employer’s Annual Federal Tax Return.

As further guidance is issued from the DOL, the IRS, and/or HHS relating to the COBRA subsidy extension, we will update you.   It should also be noted that another bill has been introduced (H.R. 2847) in Congress that, if enacted, would extend the COBRA subsidy from February 28 to June 30, 2010. 


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service


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