COBRA Subsidy Extension and Secondary Election Changes
Recently, President Obama signed a bill extending the COBRA premium subsidy under the American Recovery and Reinvestment Act (ARRA) to individuals who are involuntarily terminated from employment through March 31, 2010.
Currently, ARRA, as amended on December 19, 2009 by the Department of Defense Appropriations Act, 2010 (2010 DOD Act) provides for premium reductions for health benefits under COBRA. Eligible individuals pay 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. To qualify, individuals must experience a COBRA qualifying event that is the involuntary termination of a covered employee's employment. The involuntary termination must occur during the period that began September 1, 2008 and ends on March 31, 2010. The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.
In addition to extending the previous eligibility period through March 31, 2010, the latest extension also includes new provisions that will provide a second election opportunity for individuals whose hours were previously reduced but did not elect COBRA. This second election opportunity will give individuals the opportunity to elect continuation and take advantage of the premium subsidy if they are terminated following a reduction in hours. It should be noted the involuntary termination of employment is the trigger to qualify as an assistance eligible employee and the 65% subsidy. The reduction in work hours may be a COBRA qualifying event, but does not make an employee eligible for the subsidy.
For example, an employee’s hours are reduced on December 31st 2009, triggering a loss of eligibility under her employer’s health plan. The employee does not elect COBRA at this time because she is not eligible for the premium subsidy. The employee is then laid off on March 15th 2010, with coverage terminating effective March 31st, 2010. Under the new extension, the former employee will have a new opportunity to elect continuation and may receive the premium subsidy for periods of continuation beginning April 1st 2010. In this case, the maximum period of continuation is measured back to the original date of the qualifying event (and loss of coverage, in this example) of December 31st 2009. Furthermore, there is no lapse in coverage for HIPAA pre-existing exclusion purposes, therefore, the former employee could not be classified as having a pre-existing condition for something that was diagnosed between December 31st 2009 and March 31st 2010.
As this legislation was just signed, The Department of Labor (DOL) has not yet published guidance on the new extension or updated election notices. To keep abreast on the updated forms or further guidance as it becomes available please contact the DOL’s website at www.dol.gov, or you may contact either Ken McGee, Director of Business Solutions at kmcgee@clark-mortenson.com or your individual Clark-Mortenson representative.
**Clark-Mortenson is providing this information solely as general guidance and this should not be considered legal advice. We are only offering assistance from a risk management perspective. Any legal issues should be reviewed by your legal counsel to apply the laws to the particular facts of your situation.
