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March 10, 2010 | Legal Advisory

President Obama has signed into law the Temporary Extension Act of 2010, extending the period of time during which participants may become eligible for the COBRA subsidy and broadening the definition of involuntarily terminations that make a participant eligible to claim the subsidy. The new law did not alter the maximum period of fifteen months during which an eligible participant can receive the subsidy.  

The COBRA subsidy enables an “assistance eligible individual” (AEI) who pays 35% of the COBRA premium for health coverage continuation to have the remaining 65% paid by the coverage provider for up to fifteen months, who is then reimbursed through a tax credit. AEIs were initially limited to employees (and their beneficiaries) who became eligible for COBRA continuation coverage due to an “involuntary termination” of employment between September 1, 2008 and December 31, 2009. In December 2009, the period was extended to include involuntary terminations through February 28, 2010.

The Temporary Extension Act of 2010 extends the eligibility determination period for one additional month. This change enables those participants involuntarily terminated from employment prior to April 2010 to receive the COBRA subsidy upon their election to continue coverage and timely payment of their 35% premium share. In addition, certain former employees (and their beneficiaries) who elected not to continue coverage or who have let their continuation coverage lapse may be entitled to supplemental notice.

It is important that individuals affected by the change, such as employees fired in March 2010, be alerted to their eligibility under the new law.  

The Temporary Extension Act of 2010 also broadens the group of participants who may become AEIs. Originally, the COBRA subsidy was only available to those participants who became eligible for COBRA continuation coverage due to an involuntary termination from employment. Under the new law, a participant who becomes eligible for COBRA continuation coverage due to a reduction of hours that renders the participant ineligible for the employer’s health plan, will become eligible for the COBRA subsidy if and when the participant is terminated involuntarily prior to March 31, 2010.

For individuals who have been receiving the COBRA subsidiary since its rollout in March 2009, the fifteen month maximum period is due to expire in May 2010. This end date, coupled with the short term extension of the initial eligibility period to March 31, 2010 suggest that Congress will consider additional changes to the COBRA subsidy program in the coming weeks and months.

For more information or assistance with respect to COBRA compliance, the COBRA subsidy or its extension or other employment and employee benefit matters, please contact a member of Nutter McClennen & Fish LLP’s Labor, Employment and Benefits practice group.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.