Authored By:
Ruth S. Marcott
Attorney

1.

Loss of health coverage due to involuntary loss of employment between September 1, 2008 and December 31, 2009.

• “Involuntary Termination”—this term excludes those who retire or otherwise terminate their employment voluntarily, and those who become eligible for COBRA coverage as a result of reduced hours, divorce, loss of dependent status or another qualifying event.

2.

The individual pays 35% of the premium required to maintain COBRA coverage. The total COBRA premium may be 102% of the actual premium cost of coverage. The remaining 65% is subsidized by the plan, which the plan may then claim as a credit against wage withholdings and payroll taxes.

• If an employee’s premium obligation to continue health insurance coverage in a COBRA period is less than the full COBRA premium (usually because of an agreement with the employer), then the employee’s responsibility is 35% of that amount. For example, if there is an agreement that an employee need only pay $200 to maintain COBRA coverage, and the employee is an AEI, then the employee need only pay 35% of the $200 for up to 9 months. The subsidy reimbursement is 65% of the $200.

To qualify as an “assistance eligible individual” (“AEI”) under the Act, a COBRA “qualified beneficiary” must satisfy each of the following:

1. Appropriate Timeframe and Involuntary Discharge—the individual must have been involuntarily terminated on or after September 1, 2008 and before January 1, 2010. Note: See number 7 below. The employee must also not be eligible to participate in other health plan coverage.
   
   
2. Minimum Payment—the individual must pay 35% of the premium required to maintain COBRA coverage.
   
   
3. Election of Benefits—the individual must (a) have previously elected COBRA coverage OR (b) elect COBRA coverage during the new “special election period,” which runs from the time the Act is passed and ends 60 days after the plan administrator sends out the newly-required notice of this new special election period.

The subsidy applies to periods of COBRA continuation coverage beginning after the enactment of the Act.  A “period of coverage” is the monthly (or shorter) period for which COBRA premiums are charged.  Thus, for plans that pay monthly premiums, the subsidy provisions become applicable March 1, 2009.

• Prospective Coverage Only—the subsidy applies only to COBRA payments made during the first “period of coverage.”

The subsidy expires as of the earliest of the following:

1. Eligible For Other Coverage, Including Medicare—the date the individual becomes eligible for coverage under another group health care plan (other than plans providing only dental, vision, counseling, or referral services, a health care flexible spending plan, or a health reimbursement arrangement) or Medicare coverage.
2. Elapse of 9 Months of Subsidy—9 months after the first day of the first month to which the subsidy applies.
3. End of Maximum COBRA Coverage—the end of the maximum COBRA coverage period required by law.  Importantly, individuals who are not currently enrolled but who elect coverage under the “special election period,” are not entitled to coverage beyond the original maximum required period (generally, 18 months after a qualifying event).

Subsidy-eligible individuals must notify the COBRA plan when they are no longer eligible for the subsidy or face financial penalties.

Individuals who could have enrolled in COBRA on or after September 1, 2008 have a second chance to elect COBRA coverage.  The special election period begins on the date of enactment, February 17, 2009 and ends 60 days after the plan administrator provides the required notice described below.

• “Second Bite At the Apple” For Qualified Beneficiaries Not Currently Enrolled—a qualified beneficiary who did not elect COBRA coverage has 60 days from his receipt of notice to elect COBRA coverage.  Even a qualified beneficiary who elected COBRA coverage before February 17, 2009 but who was no longer enrolled on February 17, 2009 is entitled to elect COBRA coverage during the 60-day period.

ARARA’s notice requirement varies based on (a) when the qualifying individual was involuntarily terminated and (b) whether the individual is currently enrolled:

1. Subsidy-Eligible After Enactment—all newly-COBRA eligible participants who are involuntarily terminated between February 17, 2009 and December 31, 2009 must be given a COBRA election notice that includes information about the subsidy and describes the option to enroll in different coverage offered if so permitted by the employer.  ARARA does not affect the timing of these notices, so such notices must be provided no later than 44 days after a qualifying event. 
2. Subsidy-Eligible Before Enactment & Currently Enrolled—ARARA provides that a plan must notify those who currently have COBRA coverage within 60 days of February 17, 2009 (i.e., April 17, 2009) of the availability of the subsidy and the requirements to qualify for the subsidy.

   — Transition Period — because a Plan may not be able to timely notify those currently enrolled in the Plan of the subsidy for their premium payments (i.e., March 2009 for Plans paying monthly premiums) qualified individuals are permitted to pay full COBRA premiums for the first two coverage periods.  If that happens, the Plan must either credit the subsidized portion of the premium against future COBRA payments or refund the subsidized portion within 60 days.

3. Subsidy-Eligible Before Enactment &Not Currently Enrolled—ARARA provides that a new notice must be sent out to any qualified individual who was previously involuntarily terminated after September 1, 2008, re-offering COBRA election.  The plan must provide this notice within 60 days of February 17, 2009 (i.e., April 17, 2009).  The notice must contain information about the subsidy and describes the option to enroll in different coverage offered if so permitted by the employer. 

When determining if a qualified beneficiary had a 63-day significant break in coverage for purposes of applying pre-existing condition exclusions, ARARA excludes from calculation the period beginning on the original qualifying event date (i.e., date of the “involuntary termination”) and ending on the first day of the first COBRA coverage period after the date of enactment (i.e., March 1, 2009 for plans that pay monthly premiums).

• Period Excluded From Consideration—the period from an individual’s involuntary termination to the first day of the first COBRA coverage period may not be considered in applying pre-existing condition exclusions.

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Minneapolis, MN 55402-4504