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This report includes a summary of key changes, including the salary level test and salary basis test.

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January 26, 2010
New COBRA Subsidy Notices and Guidance Ready for Employers

The Department of Labor and Internal Revenue Service have updated model notices and information to help employers comply with an extension to the COBRA subsidy program.

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Created by the American Recovery and Reinvestment Act of 2009, the COBRA subsidy program was originally scheduled to expire at the end of 2009, and eligible individuals only qualified for the subsidy for 9 months. However, the Department of Defense Appropriations Act, 2010 (DDAA), extended the eligibility period and the maximum duration of COBRA premium assistance.

Because of the DDAA, workers who are involuntarily terminated from employment between September 1, 2008, and February 28, 2010, may be eligible for a 65-percent subsidy of their COBRA premiums for a period of up to 15 months. Involuntarily terminated employees who meet certain other requirements, and certain family members of those individuals, are referred to as “assistance-eligible individuals.”

Employers must provide COBRA coverage to assistance-eligible individuals who pay 35 percent of the COBRA premium. Employers are reimbursed for the other 65 percent by claiming a credit for the subsidy on their payroll tax returns.

Individuals who came to the end of their 9 months of subsidies before enactment of the DDAA can make retroactive payments to continue their coverage as long as they pay the 35 percent of premium costs by the later of February 17, 2010, 30 days after notice of the extension is provided by their plan administrator, or the end of the otherwise applicable payment grace period.

The administrator of a group health plan or other entity must notify certain assistance-eligible individuals of the extension by February 17, 2010. The Department of Labor has created a model Premium Assistance Extension Notice . This model notice includes information about the changes made to the premium reduction provisions of ARRA by the 2010 DOD Act. Listed below are the affected individuals and the associated timing requirements.

  • Individuals who were “assistance eligible individuals” as of October 31, 2009 (unless they are in a transition period) and individuals who experienced a termination of employment on or after October 31, 2009 and lost health coverage (unless they were already provided a timely, updated General Notice) must be provided notice of the changes made to the premium reduction provisions of ARRA by the 2010 DDAA by February 17, 2010;
  • Individuals who are in a “transition period” must be provided notice of the changes made to the premium reduction provisions of ARRA by the 2010 DOD Act within 60 days of the first day of the transition period. (The transition period begins immediately after the end of the nine months of premium reduction in effect under ARRA before the amendments made by the 2010 DOD Act, as long as the premium reduction provisions of the 2010 DOD Act would apply due to the extension from nine to 15 months).

The department has also updated its model general notice, which includes updated information on the premium reduction as well as information required in a COBRA election notice. The model alternative notice, which is used by by issuers of group health insurance coverage subject to state continuation coverage laws has also been updated.

The new notice and two updated notices are available on .

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