COBRA Subsidy Extended

December 23, 2009

President Obama recently signed into law an extension of the COBRA premium subsidy previously enacted under the American Recovery and Reinvestment Act of 2009.

This federal subsidy of 65 percent of COBRA premium costs applies to "assistance eligible individuals" ("AEIs"), originally defined as employees or qualified beneficiaries who become eligible for COBRA continuation coverage at any time between September 1, 2008 and December 31, 2009, elect COBRA coverage, and who are eligible for COBRA as a result of the employee's involuntary termination between September 1, 2008 and December 31, 2009. This subsidy was originally limited to nine months.

The cutoff date for subsidy eligibility has now been extended from December 31, 2009 to February 28, 2010. Moreover, AEIs may now receive the subsidy for up to fifteen months instead of nine.

AEIs whose premium subsidies expired prior to the enactment of this extension are being given additional time to pay the reduced premiums to maintain coverage. They must be allowed until February 17, 2010, or, if later, until 30 days after notice of the extension is provided, to make such payments.

Plan administrators generally must provide by February 17, 2010 notices regarding this extension to individuals who become AEIs on or after October 31, 2009. Moreover, plan administrators must provide notices concerning these extension rights to AEIs who did not timely pay premiums, or paid the full, unsubsidized premiums, because their subsidies expired after nine months under the prior law.

If you would like more information on the content of this alert, please contact Christine Burke Worthen, a shareholder and Chair of Eaton Peabody's Tax Practice Group, or Rodney A. Lake.

This alert is provided as general information, and is not a substitute for legal or other professional advice.