August 2010

COBRA Subsidy Expires — No Further Extensions?

A Polsinelli Shughart Employee Benefits Update

We previously advised you of the enactment and extensions of the COBRA subsidy rules. (Click here to review our previous e-Alerts on this topic.) This e-Alert discusses what you still need to do even though the subsidy has expired. Originally enacted as part of the American Recovery and Reinvestment Act of 2009 (ARRA), and extended on three separate occasions, the subsidy provides certain eligible individuals who were involuntarily terminated from employment any time between September 1, 2008, through May 31, 2010, with a 65 percent federal subsidy to reduce such individual’s applicable COBRA premium cost under their employer’s plan. Under ARRA, as amended, an individual’s COBRA subsidy offset may continue for a period of up to 15 months.

Although further extensions were proposed, none were enacted and there are currently no extensions pending. As a result, the COBRA subsidy is no longer available for any individual who is involuntarily terminated after May 31, 2010. Individuals who qualified for the subsidy as of May 31, 2010, however, may continue to pay the reduced COBRA premium for up to 15 months as long as they remain eligible.

What to Do Now:

1. For all terminations after May 31, 2010, employers should return to using their pre-ARRA COBRA notice and election forms. Model documents are available at the Department of Labor’s website, and do not include any changes to the models that were previously available before ARRA. (Click here for a link to the Department of Labor’s model documents). Therefore, employers can simply return to using their old documents (before initial ARRA model notices were released in March of 2009) if they choose.
2. The IRS recently issued guidance in the form of Frequently Asked Questions pertaining to COBRA coverage for employees who involuntarily terminated on or before May 31, 2010, and who elected COBRA coverage for a period that extends beyond May 31, 2010, Among other things, the IRS guidance clarifies that, where the COBRA election period or the commencement date of COBRA coverage extends beyond May 31, 2010, the COBRA subsidy still applies for up to 15 months, beginning with the first month of COBRA coverage where the individual was terminated on or before May 31, 2010. This assumes that the individual makes a timely COBRA election and is otherwise eligible for the subsidy (e.g., isn't eligible for coverage under any other group health plan or for Medicare). As a result, even though the individual’s COBRA election was made or COBRA coverage commenced after May 31, 2010, the subsidy would still be available because the involuntary termination occurred on or prior to that date.
3. Ensure that those individuals who are or have been receiving the COBRA Subsidy are only receiving their allowable maximum period of COBRA coverage under general COBRA rules (e.g., the maximum 18 months for a termination).
4. Ensure that if an eligible individual maintains subsidized COBRA coverage for the maximum 15-month period available under ARRA, any remaining months of COBRA coverage are charged at the plan’s full COBRA rate.

For More Information

For further guidance on COBRA subsidy rules, please contact:

• Bill Sweeney at 312.873.3664 or wsweeney@polsinelli.com
• Brian M. Johnston at 816.360.4319 or bjohnston@polsinelli.com
• Jamie Zveitel Kwiatek at 314.889.7088 or jkwiatek@polsinelli.com

About Polsinelli Shughart PC

With more than 500 attorneys, Polsinelli Shughart PC is a national law firm that is a recognized leader in the areas of business litigation, financial services, bankruptcy, real estate, business law, labor and employment, construction, life sciences and health care. Serving corporate, institutional and individual clients regionally, nationally and worldwide, Polsinelli Shughart is known for successfully applying forward-thinking strategies for both straightforward and complex legal matters. The firm can be found online at www.polsinelli.com.