Earlier this week President Obama signed the Temporary Extension Act of 2010 (the “Act”) into law, which extends the eligibility period for individuals to qualify for the COBRA premium subsidy (the “Subsidy”) and also expands the definition of a qualifying event for purposes of the Subsidy.  The Act also makes a number of other clarifying and substantive changes. 

First and foremost, the Act extends the eligibility period for individuals to qualify for the Subsidy.  Introduced last year in the American Recovery and Reinvestment Act of 2009 (“ARRA”) and extended late last year in the Department of Defense Act of 2010 (“DODA”), the Subsidy aids “assistance eligible individuals” (“AEIs”) who are involuntarily terminated by requiring an AEI’s former employer (or insurer, as applicable) to pay 65% of the AEI’s portion of the COBRA premium for continued group health plan benefits for up to 15 months.  ARRA defined an AEI as an individual who is eligible for COBRA coverage because of an involuntary termination from employment that occurred during the period from September 1, 2008 through December 31, 2009, and DODA subsequently extended the date an individual may be involuntarily terminated through February 28, 2010.  Now, the Act extends the eligibility period for individuals to qualify for the Subsidy through March 31, 2010.

Additionally, the Act expands the definition of a qualifying event for purposes of the Subsidy.  Previously, ARRA and DODA only allowed individuals to qualify as AEIs, and thus qualify for the Subsidy, if the qualifying event giving rise to COBRA eligibility was an involuntary termination of employment.  Under ARRA and DODA, if an individual first had a reduction in hours (a COBRA qualifying event) but the individual did not elect COBRA coverage or elected and then dropped COBRA coverage, and the individual was later involuntarily terminated, the individual did not qualify for the Subsidy because the initial COBRA qualifying event was the reduction in hours, not the involuntary termination.  Now the Act provides that if an individual has a reduction in hours that occurs between September 1, 2008 through March 31, 2010, followed by an involuntary termination of employment on or after March 2, 2010 (an “Affected Individual”), the Affected Individual would qualify as an AEI for purposes of the Subsidy if he or she elects COBRA coverage after the involuntary termination (regardless of whether he or she elected COBRA at the time of the reduction in hours).  However, for purposes of determining the length of the Affected Individual’s COBRA continuation coverage, the reduction in hours is considered the qualifying event, not the involuntary termination of employment.  Finally, plan sponsors are required to notify these Affected Individuals of the new COBRA election opportunity provided to them under the Act.

In light of the passage of the Act, plan sponsors should review their COBRA compliance materials and update them to reflect the extended eligibility period for individuals to qualify for the Subsidy through March 31, 2010.  Additionally, plan sponsors need to track those Affected Individuals who have a reduction in hours between September 1, 2008 and March 31, 2010, and  who are involuntarily terminated on or after March 2, 2010 through March 31, 2010.  Plan sponsors must now notify these Affected Individuals about the Subsidy and determine their period of COBRA coverage from the date of the reduction in hours, not the date of their involuntary termination of employment.