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April 20, 2010

COBRA Health Insurance Premium Subsidy Extended Through May 31, 2010

On April 15, 2010, President Obama signed into law the Continuing Extension Act of 2010, which includes a measure extending eligibility for the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) premium subsidy program, which otherwise would have expired on March 31, 2010.

The Subsidy Program

The American Recovery and Reinvestment Act of 2009 (“ARRA”), as amended, provides a federal subsidy for eligible individuals to cover 65% of the cost of COBRA continuation coverage premiums for a period of fifteen (15) months.  Specifically, employees pay 35% of the cost of their premium and the employer pays the remaining 65%.  The employer may then claim tax credit against periodic deposits for wage withholdings and payroll taxes for the amount of COBRA subsidy payments.  (See our Client Alert dated December 23, 2009, available here and our Client Alert dated March 3, 2010, available here).

The Extension

The new law extends the eligibility deadline through May 31, 2010.  In addition, COBRA coverage need not begin by May 31, 2010.  Instead, employees who are involuntarily terminated before May 31, 2010, but whose COBRA coverage starts after May 31, 2010, will qualify for the subsidy.  The new law also makes the COBRA extension retroactive to March 31, 2010.  Accordingly, the individuals who were involuntarily terminated during the period April 1 through April 15, 2010 are eligible for the subsidy.

Employers and health plan administrators must revise their COBRA notices to reflect the new May 31, 2010 subsidy eligibility expiration date.  We are available to help you in this regard. 

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If you should have any questions regarding the COBRA subsidy program, the necessary revisions to COBRA notices, or your obligation to provide COBRA continuation coverage, please contact us.