COBRA Subsidy and Unemployment Benefits Extended by the CEA

Last Updated: March 28, 2010


On Thursday, April 15, 2010, President Obama signed the Continuing Extension Act of 2010 (CEA) into law. This legislation addressed two important employment provisions: extension of the ARRA COBRA subsidy to involuntary terminations that occur throughMay 31, 2010 and an extension of certain ARRA unemployment provisions throughJune 2, 2010.

Background

As you may recall, ARRA created a federal subsidy for certain individuals losing their group health insurance who elected COBRA continuation coverage (see Vantaggio’s articleCOBRA Subsidy Created by ARRA). Assistance Eligible Individuals (AEIs) whose employment was terminated involuntarily between September 1, 2008 and December 31, 2009 could receive a subsidy in the amount of 65% of their COBRA premium for a period of 9 months. The Department of Defense Appropriations Act of 2010 (DOD Act) included a provision extending this federal COBRA premium subsidy to involuntary terminations through February 28, 2010 and provided an additional 6 months of subsidy on top of the original 9 for a total of 15 months. Additionally, certain ARRA unemployment benefits that were due to begin phasing out by the end of 2009 were extended through the first two months of 2010. The DOD Act pushed out the date for these benefits to February 28, 2010. The Temporary Extension Act (TEA) took things a step further and extended the subsidy to involuntary terminations that occurred through March 31, 2010 and the unemployment insurance provisions through April 5, 2010. The TEA also expanded the definition of AEIs to include an employee who lost his/her medical benefits as a result of a reduction in hours on or after September 1, 2008 and then experienced an involuntary termination between March 2 and March 31, 2010.

New Subsidy Rules

Although not impacting the maximum period of subsidy eligibility (still 15 months), the CEA extended the definition of AEIs to include involuntary terminations that occur through May 31, 2010 and to an employee who lost his/her medical benefits as a result of a reduction in hours on or after September 1, 2008 and then experiences an involuntary termination between March 2 and May 31, 2010. The premium subsidy for these individuals would, however, only be available for any periods of coverage after March 2, 2010. Additionally, the maximum period of COBRA coverage would still be counted from when the coverage was originally lost due to the reduction in hours. For example, if an employee’s hours were reduced in early 2009 and the person elected COBRA at the time, he/she would not have been eligible for the subsidy due to the fact that there was no involuntary termination at the time. If the person is still on COBRA and was terminated on April 2, he/she can now receive the subsidy for periods of coverage following April 2, 2010. As most health insurance plans run on a calendar-month basis, this would mean that this person could receive the subsidy beginning with the month of May. If this same person had NOT elected COBRA in early 2009 when his/her hours were reduced (or if he/she did elect COBRA but then later discontinued the coverage), the CEA will now provide for a new election period allowing the person to get back on COBRA and to start claiming the subsidy. However, the maximum period of COBRA coverage will be measured back from the original date of loss of coverage due to the reduction in hours. The person will not be required to pay any retroactive COBRA premiums for periods during which he/she was not covered, and any periods of non-coverage will not count against the 63-day lapse in coverage rules for purposes of determining pre-existing condition exclusions according to HIPAA.

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