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One-Month Extension of COBRA Subsidy

Employee Benefits Alert J. Paul Jacobson, Robert D. Rothacker, David P. Olson, Sarah M. Linsley, Marla B. Anderson

On March 2, President Obama signed into law the "Temporary Extension Act of 2010" (the "Act"), which extends the COBRA premium subsidy eligibility period to March 31, 2010. The Act also makes several other clarifications and modifications with respect to the subsidy, as described in detail below.

What's New under the Act?

One-Month Extension: Employees who involuntarily lose their jobs during March will now be entitled to the 65 percent COBRA premium subsidy.

Loss of Health Plan Coverage due to Reduction in Work Hours: Individuals who (1) lost employer health plan coverage due to a reduction in work hours between September 1, 2008 and March 31, 2010; (2) did not elect COBRA following the reduction in hours or did elect COBRA coverage but later dropped it; and (3) are involuntarily terminated between March 2, 2010 and March 31, 2010 must be given another opportunity to elect COBRA and will be eligible for the subsidy. For this situation, the period of COBRA entitlement for such individual is measured from the reduction in hours, not the involuntary termination.

Penalty for Wrongful Denial of Subsidy: The government may assess a $110 per day penalty against an employer or insurer who failures to comply with a Department of Labor ("DOL") determination that an individual was wrongfully denied the COBRA subsidy. The penalty begins on the tenth day following an employer's receipt of such a DOL determination.

Clarification of Meaning of "Involuntary Termination": An individual's termination is deemed to be an involuntary termination for purposes of the subsidy if the employer determines that the termination was involuntary and maintains supporting documentation of such determination.

What's Next?

Employer Actions:

  • Identify individuals who are newly entitled to subsidized COBRA coverage, including those who previously lost health plan coverage due to a reduction in hours, and communicate the availability of the subsidy to individuals involuntarily terminated in March.
  • Take action to promptly extend subsidized COBRA coverage in situations where the DOL determines that the employer wrongfully denied the subsidy.
  • Where the subsidy is extended, document that a termination was involuntary, particularly where there is a severance agreement or other documentation that suggests that a termination was voluntary or mutual.

Future Extensions: The Senate is currently considering the "American Workers, State, and Business Relief Act of 2010," which would extend the COBRA subsidy to apply for involuntary terminations through the end of 2010.

If you have questions regarding who should receive the notices, or any other questions regarding the subsidy, please contact Paul Jacobson at 414-277-5631 / [email protected], Robert Rothacker at 414-277-5643 / [email protected], David Olson at 414-277-5671 / [email protected], Amy Ciepluch at 414-277-5585 / [email protected], Sarah Linsley at 312-715-5075 / [email protected], Kerri Hutchison at 414-277-5287 / [email protected], Marla Anderson at 414-277-5453 / [email protected] or your Quarles & Brady attorney.

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