Changes to COBRA due to ARRA

Changes Regarding COBRA Continuation Coverage Under ARRA, as amended by the Temporary Extension Act of 2010

Full link: http://www.dol.gov/ebsa/newsroom/fsCOBRApremiumreduction.html

TEA extended the COBRA premium reduction eligibility period for one month until March 31, 2010. TEA also expanded eligibility to individuals who experience a qualifying event that is a reduction of hours occurring at any time from September 1, 2008 through March 31, 2010, which is followed by an involuntary termination of employment on or after March 2, 2010 through March 31, 2010. This expansion also includes a second election opportunity for these individuals who had a reduction of hours qualifying event followed by an involuntary termination, if they did not elect COBRA continuation coverage when it was first offered OR elected but subsequently discontinued COBRA.

Eligibility for the Premium Reduction

The premium reduction for COBRA continuation coverage is available to "assistance eligible individuals". An "assistance eligible individual" is the employee or a member of his/her family who elects COBRA coverage timely following a qualifying event related to an involuntary termination of employment that occurs at any point from:

  • September 1, 2008 through March 31, 2010; or

  • March 2, 2010 through March 31, 2010 if:

    • the involuntary termination follows a qualifying event that was a reduction of hours; and

    • the reduction of hours occurred at any time from September 1, 2008 through March 31, 2010.

  • A reduction of hours is a qualifying event when the employee and his/her family lose coverage because the employee, though still employed, is no longer working enough hours to satisfy the group health plan’s eligibility requirements.

  • Generally, the maximum period of continuation coverage is measured from the date of the original qualifying event (for Federal COBRA, this is generally 18 months). However, ARRA, as amended by TEA, provides that the 15 month premium reduction period begins on the first day of the first period of coverage for which an individual is “assistance eligible.” This is of particular importance to individuals who experience an involuntary termination following a reduction of hours. Only individuals who have additional periods of COBRA (or state continuation) coverage remaining after they become assistance eligible are entitled to the premium reduction.

  • For purposes of ARRA, COBRA continuation coverage includes continuation coverage required under Federal law (COBRA or Temporary Continuation Coverage) or a State law that provides comparable continuation coverage (for example, so-called "mini-COBRA" laws).

  • Those who are eligible for other group health coverage (such as a spouse’s plan) or Medicare are not eligible for the premium reduction. There is no premium reduction for periods of coverage that began prior to February 17, 2009.

  • Assistance eligible individuals who pay 35 percent of their COBRA premium must be treated as having paid the full amount. The premium reduction (65 percent of the full premium) is reimbursable to the employer, insurer or health plan as a credit against certain employment taxes.

Period of Coverage

The premium reduction applies to periods of coverage beginning on or after February 17, 2009. A period of coverage is a month or shorter period for which the plan charges a COBRA premium. The premium reduction for an individual ends upon eligibility for other group coverage (or Medicare), after 15 months of the reduction, or when the maximum period of COBRA coverage ends, whichever occurs first. Individuals paying reduced COBRA premiums must inform their plans if they become eligible for coverage under another group health plan or Medicare.

Notice Requirements

ARRA, as amended by TEA, mandates that plans notify certain current and former participants and beneficiaries about the premium reduction. The Department is updating its existing models and creating several additional models to help plans and individuals comply with these requirements. Each model notice will be designed for a particular group of individuals and will contain information to help satisfy ARRA’s notice provisions, including those added by TEA.  As soon as the notices are complete, they will be available on EBSA’s Web site at www.dol.gov/cobra

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