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COBRA Premium Subsidy Extended

March 8, 2010

By Thomas I. Kramer

BENEFITS NOTEBOOK 

On March 2, 2010, President Obama signed the Temporary Extension Act of 2010, amending the American Recovery and Reinvestment Act of 2009 (ARRA), which was first amended in December by the Defense Department Appropriations Act, and which provides for premium reductions for health continuation coverage under state and federal law, including the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Readers of our February 16, April 6, and December 22, 2009 Bullard Alerts know that the ARRA premium reduction, as extended last December, applied to coverage lost due to certain involuntary terminations of employment that occurred before March 1, 2010. (See http://www.bullardlaw.com/Resources/BullardAlerts.html).

In addition to a few more technical changes, the new law does the following three things:
 
  • Extends by one month the window for the 65% federal premium subsidy, and imposes corresponding notice requirements. Employees whose employment is involuntarily terminated before March 31, 2010 may be eligible for this subsidy.
     
  • Opens a new election window for qualified beneficiaries who lost coverage due to a reduction in hours after August 31, 2008 and then suffered an involuntary termination of employment after March 1, 2010. In such cases, the qualified beneficiary’s maximum continuation period still may start on the date of the reduction in hours, not the date of the involuntary termination.
     
  • Authorizes the Department of Labor or Health & Human Services or an affected individual to sue for violations of ARRA, as amended, and permits assessment of a penalty against a plan sponsor or health insurer of up to $110 per day for each failure to comply with a determination of eligibility for the subsidy within 10 days after receiving the determination.

Let’s look at each of these changes in turn, using examples to illustrate and expand upon each change:

The first change, keeping the eligibility window open, would mean that an employee, Charlotte, whose employment is involuntarily terminated on March 31, 2010, could be eligible for subsidized COBRA coverage for up to 15 months.

The second change, providing a subsidy to certain qualified beneficiaries who originally lost coverage due to a reduction of hours, is more complex. Let’s take it in pieces.
 
  • This would mean that a former employee, Delilah, whose hours were reduced in December 2009 causing Delilah to lose group health coverage on December 31, 2009, but who did not elect COBRA coverage at that time (or elected COBRA but later discontinued it), could again be eligible for subsidized COBRA coverage if her employment is involuntarily terminated between March 2, 2010 and March 31, 2010.
     
  • Delilah’s health plan administrator will need to give her another COBRA election form and premium subsidy notice informing her that she might be eligible for COBRA coverage starting at the time of her involuntary termination.
     
  • If Delilah is eligible, and she elects subsidized coverage, her maximum continuation period would normally extend for up to 18 months from December 31, 2009, and her subsidy could extend for up to 15 months from the date she loses coverage in March, 2010. (So, Delilah’s COBRA coverage and her subsidy both would normally end on June 30, 2011, in this case.)
     
  • The new law does not require Delilah to go back and pay for un-subsidized COBRA coverage between her reduction in hours and her involuntary termination of employment. We suspect the plan could not require that either, creating the possibility of a gap in Delilah’s coverage. The new law makes clear that the gap is disregarded for purposes of determining whether a preexisting-condition limit may apply to Delilah’s coverage.
     
  • We are unsure how the Oregon Insurance Division will respond to the new law, for Oregoninsured health plans not subject to COBRA. We suspect that Oregon will adopt a rule that is identical to COBRA for this purpose.

The third change, authorizing lawsuits by the DOL, DHHS or affected individuals, would mean that if Evan, a qualified beneficiary, were to contest his former employer’s characterization of his termination, and the DOL or DHHS were to decide that Evan is an “assistance eligible individual,” Evan, or the DOL or DHHS, could sue to enforce this decision, and the DOL or DHHS could penalize the plan sponsor or health insurer up to $110 per day for failing to comply with the decision within 10 days of receiving it.

The new law clarifies that the employer’s determination of whether a termination of employment was “involuntary” will control, so long as the determination is based on “a reasonable interpretation” of ARRA and administrative guidance, and “the employer maintains supporting documentation of the determination, including an attestation by the employer of involuntary termination.” This provision highlights the need for employers to maintain thorough and accurate records of subsidy determinations.

Guidance and amended notices from the DOL, IRS, and state insurance departments will likely follow. The federal subsidy is likely to be extended again. Currently, the Senate is debating H.R. 4213, a bill that would extend eligibility for the COBRA subsidy program through December 31, 2010.

Please feel free to contact us if you have questions or comments about this new law, or any matters relating to employer-sponsored benefits. 
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