April 18 Deadline For New COBRA Notices Is Approaching!

Background: The American Economic Recovery and Reinvestment Act of 2009 (the “Act”), signed by President Obama on February 17, 2009 (the “Enactment Date”), contains relief for certain COBRA recipients. Under the Act, individuals who become eligible for COBRA coverage due to an involuntary termination of employment (other than for gross misconduct) occurring from September 1, 2008 through December 31, 2009 are eligible to pay a reduced premium for COBRA coverage for up to 9 months, starting March 1, 2009. Such individuals include the terminated employee and his or her spouse and dependents, and are referred to as “Assistance Eligible Individuals” or “AEIs”. This premium reduction, which equals 65% of the amount otherwise required to be paid, is referred to as the “Subsidy”.

To make the Subsidy available, any AEI whose COBRA entitlement is due to an involuntary termination which preceded the Enactment Date, and who on the Enactment Date is not receiving COBRA coverage (because he or she either failed to elect to receive the coverage or elected the coverage but later dropped it), must now be given another opportunity to elect to receive COBRA coverage and thus take advantage of the Subsidy. This opportunity is referred to as the “Second COBRA Election”. The period for making the Second COBRA Election begins on the Enactment Date, and ends 60 days after the plan administrator notifies the AEI about the election. The plan administrator is required to furnish this notice by April 18, 2009. The Subsidy is automatically provided, as of March 1, to an AEI who is receiving COBRA coverage on the Enactment Date . The plan administrator is required to notify this AEI about the Subsidy by April 18.

The entitlement to the Subsidy ends at the earlier of (1) the time the AEI becomes eligible for Medicare or for coverage under another group health plan, or (2) at the end of the maximum COBRA coverage period, measured from the date of the termination of employment. The AEI is required to notify the plan administrator when he or she becomes so eligible. Under the Act, high income individuals (those earning at least $125,000/year, or $250,000/year for married individuals filing a joint tax return)are subject to tax recapture on any Subsidy they receive. Thus, an AEI may waive entitlement to the Subsidy.

Meeting the Act’s requirements: To satisfy the Act’s notice and Second COBRA Election requirements, the following steps should be taken:

Identify the individuals who became eligible for COBRA coverage due to a qualifying event (whether or not an involuntary termination) occurring on or after September 1, 2008 and prior to the Enactment Date. Divide these individuals into 2 groups: (1) those who are AEIs and are not receiving COBRA coverage as of the Enactment Date (“Group 1”) and (2) all others (“Group 2”).

The Second COBRA Election must be made available for, and a notice must be prepared and sent by April 18 to, each AEI in Group 1. The notice must include

  1. a discussion of the forms (if any) which must be completed to establish eligibility for the Subsidy;
  2. contact information for the plan administrator or other person maintaining relevant information pertaining to the Subsidy
  3. a description of the Subsidy, and all requirements and conditions pertaining to it , including the need to inform the plan administrator of eligibility for medicare or for coverage under another group health plan, the penalty for the failure to so inform and an AEI’s right to waive the Subsidy.
  4. a description of the Second COBRA Election, including the period during which this election may be made; and
  5. a description of the period during which the COBRA coverage will be provided if the Second COBRA Election is made.

A notice must be prepared and sent by April 18 to each individual in Group 2. This notice must include the information in (a) to (c) above.

The Department of Labor has issued model notices which can be customized or otherwise used for these purposes.