E-Alerts

President Obama Extends Federal COBRA Subsidy

April 2010 by Sara Goldsmith Schwartz

On April 15, 2010, President Obama signed the Continuing Extension Act of 2010 (“CEA”). CEA further extends the eligibility period for the COBRA subsidy contained in the American Recovery and Reinvestment Act (“ARRA”).

Extension Of COBRA Subsidy

CEA extends the eligibility period for the COBRA subsidy so that employees who are involuntarily terminated between April 1, 2010 and May 31, 2010 will be eligible for the subsidy. Prior to CEA’s enactment, only employees involuntarily terminated through March 31, 2010 were eligible.

Under ARRA’s subsidy provision, as long as an AEI pays 35% of the premium for COBRA continuation coverage, the applicable health plan must treat the individual as having paid the full premium. Employers must “front” the cost of the 65% subsidy but may obtain reimbursement from the federal government by taking a credit on their payroll tax returns. The COBRA subsidy is available to AEIs for a maximum period of 15 months.

(For details of the logistical requirements of the COBRA subsidy, as well as the first extension, see the Firm’s December 2009 e-alert entitled President Obama Extends Federal COBRA Subsidy. )

Recommendations For Employers

Employers are encouraged to do the following to ensure compliance with CEA’s requirements:

Send required notices to employees whose employment is terminated through May 31, 2010;
Update COBRA forms for compliance with all recent statutory amendments;
Confer with group health-insurance carriers and counsel to ensure that all AEIs are being offered continuation coverage in accordance with federal COBRA requirements; and
Follow procedures for maintaining accurate records of the COBRA premium assistance payments.

As the purpose of CEA is to give Congress more time to consider extending certain programs, including the COBRA subsidy, through 2010, further changes in this area of the law are expected. We will keep you apprised of significant developments as they occur.

Meanwhile, please contact us if you have any questions about the potential impact of CEA on your organization.