On Mar. 2, the President signed into law the “Temporary Extension Act of 2010” (the Act), which, among other provisions extends the COBRA continuation premium subsidy for one month and makes a number of other clarifying and substantive changes to it. Here's an overview of the major changes to the COBRA premium subsidy rules:

Extension of COBRA 65% subsidy. In 2009, Congress created a temporary 65% COBRA premium subsidy in response to a major recession that added millions to the unemployment rolls and would have left many without health insurance coverage because they couldn't afford to pay COBRA premiums on their own. The way the subsidy works is that, if a company has a group health plan that is subject to the Federal COBRA continuation coverage requirements or to similar requirements under State law, and the company receives a 35% payment from someone eligible for the subsidy, it must make the remaining 65% premium payment. The company is then “paid back,” either by offsetting its payroll tax deposits or claiming the subsidy as an overpayment at the end of the payroll quarter. Eligible individuals can receive this subsidy for up to 15 months. However, under pre-Act law, to qualify for premium assistance, a worker had to be involuntarily terminated between Sept. 1, 2008 and Feb. 28, 2010. That meant that if there had not been an extension, workers involuntarily terminated after Feb. 28 wouldn't have been eligible for the COBRA subsidy. The new law extends the deadline for one month, so that workers who are involuntarily terminated between Sept. 1, 2008 and Mar. 31, 2010 are eligible for up to 15 months of COBRA subsidies. (I should also note that another bill currently being considered by the Senate would extend the 65% COBRA premium subsidy to apply for involuntary terminations through the end of 2010.)

New election for those terminated after a reduction in hours. The new law clarifies the treatment of COBRA continuation that results from reductions in hours followed by termination of employment. Evidently, there was some concern under pre-Act law regarding COBRA continuation coverage for workers who (1) were hit by a reduction in hours, (2) did not make a timely COBRA continuation election or made the election and later dropped COBRA continuation coverage (e.g., because it was too expensive), and (3) are ultimately involuntarily terminated. Under the new law, if an individual did not make a COBRA continuation coverage election when his or her hours were reduced (or made an election but then discontinued COBRA coverage), if the individual is then involuntarily terminated from employment, that will be treated as a qualifying event for COBRA continuation coverage purposes. The period of the individual's COBRA continuation coverage is determined as though the qualifying event were the reduction in hours of employment. However, affected individuals will not be required to make a payment for COBRA continuation coverage for the period between their reduction in hours of employment and their involuntary termination.

I hope this information is helpful. If you would like more details about the COBRA premium subsidy, please do not hesitate to call.

Very truly yours,
Paresky Flitt & Company, LLP

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