Earlier this week President Obama signed the Department of Defense Appropriations Act, 2010, (the "Act") which, among other things, extends the eligibility period for and the length of the COBRA premium subsidy (the "Subsidy"). Introduced earlier this year in the American Recovery and Reinvestment Act of 2009 ("ARRA"), the Subsidy aided "assistance eligible individuals" ("AEIs") who were involuntarily terminated by requiring an AEI's former employer (or insurer, as applicable) to pay 65% of the AEI's portion of the COBRA premium for continued group health plan benefits for up to nine months. ARRA defined an AEI as an individual who is eligible for COBRA coverage because of an involuntary termination from employment that occurred during the period from September 1, 2008 through December 31, 2009. Enacted just before the year's end, the Act makes important changes to the Subsidy and its administration.

First, the Act extends the eligibility period for the Subsidy for an additional two months to include qualified beneficiaries who are involuntarily terminated through February 28, 2010. Notably, the new rule does not require that COBRA coverage begin by February 28, 2010 but that the AEI must experience an involuntary termination of employment by February 28, 2010 to be eligible (even if the COBRA coverage does not begin until March 1, 2010).

Second, the Act provides a longer Subsidy period. Under ARRA, an AEI who continued to qualify could receive the Subsidy for a maximum of nine months. The Act increases the maximum period for receiving the Subsidy to 15 months, which gives AEIs an additional six months of the Subsidy. 

Third, an AEI who already reached the end of his or her Subsidy period (a maximum nine months) prior to the enactment of the Act can take advantage of the extension and has additional time to pay the reduced premium under the Subsidy to retroactively continue COBRA coverage. In order to continue COBRA coverage, an AEI has until the later of February 17, 2010 (60 days after the enactment of the Act), or 30 days from the date of the required plan administrator notice, to pay 35% of the premium cost and continue coverage. For example, an individual whose nine months under the Subsidy ran out on November 30 and who did not elect to pay the full premium (without the Subsidy) for December now may pay his or her 35% share of the December premium in January and receive retroactive COBRA coverage for December. In addition, an AEI who continued COBRA by paying the full premium after exhausting initial eligibility for the Subsidy must be reimbursed or given credit for the excess payments (i.e., the additional 65% of the COBRA premium). 

Fourth, the Act imposes new notice obligations on plan administrators. On or before February 17, 2010, a plan administrator must send a notice explaining the Act and the changes to the Subsidy to any individual who: (i) qualifies as an AEI on or after October 31, 2009, (ii) experiences a COBRA qualifying event (consisting of termination of employment) on or after October 31, 2009, or (iii) previously qualified as an AEI but either did not timely pay the premium for any period of coverage after the individual exhausted the Subsidy or paid the full premium to continue COBRA coverage after the Subsidy ended. A plan administrator must provide a notice explaining the Act and the changes to the Subsidy to those individuals who experience a qualifying event after December 19, 2009 within the normal time frame applicable to COBRA qualifying event notices. 

Employers and group health plan administrators should become familiar with the specifics of the Act and be prepared to provide the requisite notices on or before February 17, 2010. Additional clarification on the Act and the implementation of these changes is expected from the Department of Labor (and possibly the Internal Revenue Service) in the coming weeks.