A new federal act extends the COBRA premium subsidy.  The subsidy requires "assistance eligible employees" to pay 35% of the monthly applicable COBRA premium, with the employer paying the remaining 65% of the premium.  The employer is then reimbursed for its 65% payment, either by taking a credit against employment taxes, or if this is insufficient, by direct reimbursement from the federal government.  The new provisions regarding the extension of the COBRA premium subsidy are contained in the Department of Defense Appropriations Act (the "Act").  The Act amends the subsidized COBRA continuation provisions contained in the American Recovery and Reinvestment Tax Act of 2009 as follows:

1. The period for initial subsidized COBRA eligibility is extended from December 31, 2009 to February 28, 2010.
   
   
2. The period of subsidized COBRA coverage is extended from nine months to 15 months. 
   
   
3. The Act requires employers to provide an additional notice within 60 days after the enactment of the Act to persons who were assistance eligible employees at any time on or after October 31, 2009, or experienced a qualifying COBRA event on or after that date, regarding the amendments contained in the Act.  This notice must be delivered within 60 days after the date of the enactment of the Act.
   
   
4. Persons who exhausted their 9 months of subsidized COBRA and then dropped COBRA coverage must be given the opportunity to re-elect subsidized COBRA for the remainder of the now 15 month period.  To do so, they must pay back subsidized COBRA premiums by the later of February 17, 2010, or 30 days after their plan administrator gives them notice of their right to receive additional subsidized COBRA coverage.  A second group, those who exhausted subsidized COBRA coverage, but continued to pay unsubsidized COBRA coverage, must either receive a refund of the difference or have the excess payments made credited against future COBRA premiums. 

The Department of Labor is expected to issue a new set of model notices reflecting the extended subsidized COBRA period.

You should immediately:

1. Identify employees who are eligible for subsidized COBRA for the extended period.
    
2. Start charging the subsidized COBRA for assistance eligible employees.
   
3. Be prepared to refund or credit against future COBRA payments the non-subsidized COBRA premiums paid by such employees after the initial 9 month subsidy period ran out.
   

For further information regarding the COBRA amendments contained in the Act, please contact Paul Altman at (312) 261-2105. 

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