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Labor & Employment Law Alert: COBRA Premium Subsidy Extended and Expanded

December 23, 2009

On December 21, 2009, President Obama signed the Department of Defense Appropriations Act for 2010 (H.R. 3326) (the "Act"). Provisions of the Act extend and expand the COBRA premium subsidy that was passed as part of the February 2009 economic stimulus bill and was scheduled to expire on December 31, 2009 (as discussed in a previous Client Alert here).

Key components of the Act's COBRA subsidy provisions include the following:

1. The eligibility period for involuntarily terminated employees is expanded to include the period from September 1, 2008 to February 28, 2010 (the eligibility period previously was due to end on December 31, 2009). Also, the new Act does not require that individuals be eligible for COBRA on or before February 28, 2010, only that they are involuntarily terminated on or before that date.

2. The premium subsidy period for assistance eligible individuals ("AEIs") is extended from nine to 15 months.

3. AEIs whose subsidized COBRA coverage has already ended will have 60 days from the date of enactment (or 30 days after notice is provided by the plan administrator) to pay the subsidized premium amount and obtain retroactive coverage.

4. AEIs who had already paid the full premium may be reimbursed or credited for future payments in an amount equal to the excess of the subsidized premium that they paid.

5. Within 60 days, plan administrators must provide a notice to individuals who are or become AEIs on or after October 31, 2009 describing the premium subsidy extension. The DOL has not yet released model forms.

Some of these new requirements and obligations remain unclear at this time. It is expected that the DOL or IRS will issue interpretive guidance in the near future. In the meantime, employers should conduct a compliance review as soon as possible and act immediately to identify employees that may be affected by the new law. Employers should also periodically check the DOL website at www.dol.gov/cobra for updates.