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January 4 2010

COBRA Premium Reduction Program Extended

By: Timothy J. Tornga


On February 17, 2009, Congress authorized the special COBRA premium reduction in the American Recovery and Reinvestment Act (ARRA). The ARRA allowed assistance eligible individuals (“AEIs”) to purchase COBRA coverage at a reduced premium rate of 35% of standard COBRA rates for a period of nine months. This reduced premium was available only if the individual experienced a COBRA qualifying event that was an involuntary termination and only if the qualifying event occurred between September 1, 2008 and December 31, 2009.

Congress expanded the eligibility window and extended the premium reduction period by passage of the Department of Defense Appropriation Act, 2010. The key provisions of the new law are:

Extended Eligibility Window: The window for eligible treatment has been extended for an additional two months to apply to individuals who have an involuntary termination on or before February 28, 2010.

Extended Premium Reduction Period: The period of reduced premium has been increased by an additional six months, from nine months to 15 months. The total COBRA coverage period remains at 18 months for involuntary terminations of employment.

Clarification of Cut-off Date: The ending date has been simplified so that if the qualifying event (involuntary termination) occurs on or before February 28, 2010, that individual is eligible for the reduced premium even if COBRA coverage does not start until a later date.

Reinstatement of Elections
: Assistance eligible individuals (AEIs) who exhausted the nine-month premium reduction period and let their COBRA coverage lapse must be allowed to reinstate (retroactively elect) their COBRA coverage for the additional six-month period at the reduced premium rate. The due date for their payment is the later of February 17, 2010 or the date that is 30 days after the date the COBRA administrator sends them a notice of their new right to pay and reinstate.

Refund/Credit for Excess Payment: For AEIs who have already paid the regular, unreduced premium after exhausting the original nine-month reduction period, the employer must either refund the difference or may credit the excess to successive months of COBRA coverage under rules contained in the original provisions of ARRA.

New Notice Requirements: As with the original provisions of ARRA, new notices must be sent.

  1. A notice of these new rules must be sent to anyone who was an assistance eligible individual (AEI) on or after October 31, 2009, or who has a COBRA qualifying event that is a termination of employment (voluntary or involuntary) after that date. This notice must be sent on or before February 17, 2009 for qualifying events occurring on or before December 19, 2009 and or within the normal COBRA notice timeframe for AEIs having a qualifying event after December 19, 2009.
  2. A notice must be sent to those AEIs who are eligible for reinstatement of their COBRA election or entitled to the refund or credit describing their rights to either reinstate their election or receive the refund or credit. This notice must be given within the first 60 days after the individual has exhausted the initial nine-month premium reduction period.

The Department of Labor (DOL) has informally stated that it would be publishing additional guidance soon. This may include model notices.

A number of responses by employers or administrators are required. The first step is to identify individuals whose premium reduction period has lapsed or is about to lapse. Even though DOL guidance is not presently available, we suggest that you promptly send such individuals an “unofficial” notice informing them of the extended period and allowing them to reinstate their coverage or regarding their overpayment, if they had continued making payments at the regular, unreduced rate. Next, identify those who have a COBRA qualifying event that is a voluntary or involuntary termination of employment after October 31, 2009 and those who were assistance eligible individuals at any time after October 31, 2009. Then prepare the formal notice of the revised premium reduction rules (hopefully following DOL guidance) and send it to all such individuals on or before February 17, 2010. Modify your current qualifying event notice forms to reflect the changes from this new legislation and use it for anyone who has a qualifying event on or before February 28, 2010.

Employers and administrators will also need to look ahead to March 1, 2010. Follow current events and determine if any further extensions have been adopted. Other legislative proposals for a longer extension are pending and may be adopted. After the ARRA window finally closes, it will be necessary to revise the COBRA Notices and procedures for those who have qualifying events so that the premium reduction provisions are removed. In other words, restore the COBRA forms to their pre-ARRA state.

If you would like assistance with preparation of forms or notices or if you have any other questions about these changes, call Jay Rosloniec (632-8023) or Tim Tornga (632-8090).

Related Newsletters
"Cobra Premium Reduction Program Extended," 1/4/2010