January 15, 2010Client Alert

Employers Must Modify COBRA Notices: Department of Labor Releases Updated Model Notices

The American Recovery and Reinvestment Act of 2009 (“ARRA”) created a 9-month COBRA subsidy for employees and their dependents who lost group health plan coverage due to the employee’s involuntary termination between September 1, 2008 and December 31, 2009. In December 2009, Congress passed the Department of Defense Appropriations Act, 2010 (“DDAA”), which extended the subsidy period to up to 15 months and applied the subsidy to involuntary terminations through February 28, 2010.

ARRA required employers to provide qualified beneficiaries with election notices containing information about their 9-month subsidy rights. DDAA requires employers to provide modified election notices to certain individuals reflecting the expansion of the subsidy rights. Congress directed the Department of Labor (“DOL”) to issue revised model COBRA notices.

On January 14, 2010, the DOL released three revised model COBRA notices: a revised model General Notice, a revised model Alternative Notice, and a model Premium Assistance Extension Notice.

Revised General Notice

Employers must send the revised model General Notice to any qualified beneficiary who experiences a qualifying event between September 1, 2008 and February 28, 2010 (regardless of the type of qualifying event), and who has not yet been provided a COBRA notice.

Practice Tip: The DOL believes that individuals who experienced an involuntary termination during December 2009, but who did not become eligible for COBRA coverage until January 2010 may need an updated General Notice and a new 60-day election period in which to make a COBRA election.

While the specific rationale behind this belief is not known, we believe their advice may be in response to situations where the employer reverted to the pre-ARRA COBRA form. For example, consider an employer which operated the plan on a monthly basis. Under ARRA guidance, the individual terminated on December 15, 2009, would not have been eligible for COBRA subsidy coverage because his or her COBRA coverage would not begin until January 1, 2010, disqualifying the individual as an assistance eligible individual. It is possible that the employer would have discontinued use of its COBRA notices containing the ARRA language and reverted to using COBRA notices without ARRA language. Under the DDAA extension, such notice would not be sufficient to meet the new DDAA notice requirements.

Employers dealing with December terminations should consult with legal counsel to ensure that they have sent the proper COBRA notice.

The notice must be sent on or before the later of: (1) February 17, 2010; or (2) the end of the period by which the COBRA election notice should be sent to the respective employee.

Revised Alternative Notice

Employers who are subject to state Continuation Coverage requirements (e.g., certain Wisconsin and Illinois employers), but not federal COBRA, may use the Revised Alternative Notice to satisfy their Continuation Coverage notice responsibilities provided such use has been approved by the state agency in charge of continuation coverage compliance. The revised model Alternative Notice may require adjustment to conform to the applicable state law. Employers subject only to state continuation coverage law should consult with legal counsel to ensure compliance with state laws.

Unless state law otherwise requires, the notice must be sent on or before the later of: (1) February 17, 2010; or (2) the end of the period by which the COBRA election notice should be sent to the respective employee. Alternatively, state law may permit employers to merely supplement the prior notice with the Premium Assistance Extension Notice.

Premium Assistance Extension Notice

The Premium Assistance Extension Notice is intended to provide notice to certain qualified beneficiaries who have already been provided a COBRA election notice that did not include the COBRA subsidy extension information. Such individuals will fall into one of three groups:

  • Individuals who were “assistance eligible individuals” as of October 31, 2009, and not in a transition period, described below. This group consists of individuals who elected COBRA continuation coverage following the involuntary termination of the covered employee and who remained on COBRA coverage as of October 31, 2009.
  • Individuals who were terminated from employment on or after October 31, 2009, lost health coverage, and who were not provided the Revised General (or, presumably, Alternative) Notice.

Notices that apply to these two groups must be sent by February 17, 2010.

  • Individuals in a transition period. The transition period is the period that begins immediately after the end of the maximum number of months of premium reduction available under ARRA (generally 9 months) and ends after the end of the maximum number of months of premium reduction available under DDAA (generally 15 months). An individual is in a transition period only if the premium reduction provisions were to continue to apply due to the extension of subsidized COBRA coverage from 9 to 15 months and such individual otherwise remains eligible for the premium reduction.

Example: Assume Bob was terminated on February 28, 2009, and otherwise eligible for COBRA coverage administered on a calendar month basis, Bob would have received the COBRA subsidy from March 1, 2009 through November 30, 2009 (9 months). Thereafter, Bob would have to continue COBRA coverage at the full premium or drop coverage. Bob is considered to be in the transition period because his period of available subsidized COBRA coverage following DDAA would last from March 1, 2009, to May 31, 2010. Bob would be provided with the Premium Assistance Extension Notice.

Notices that apply to individuals in a transition period must be sent within 60 days of the first day of the individual’s transition period. Please note, this is a relatively quick turnaround for employers where the individual started his or her transition period at the beginning of December 2009.

Action Items

  • Identify individuals that must receive a revised notice. Specifically, employers should look for:

    • Individuals in a “transition period”;
    • Individuals who were terminated on or after October 31, 2009 (particularly paying attention to individuals terminated in December 2009);
    • Individuals who were on subsidized COBRA coverage as of October 31, 2009; and
    • New terminations moving forward.

  • Prepare modified COBRA election forms.
  • Send required notices to such individuals.

This client alert is one of a series designed to provide summaries of the American Recovery and Reinvestment Act of 2009 and information and guidance regarding opportunities and relief made available through The Act. All of The Act client alerts are available on Michael Best's Stimulus and Economic Recovery Team publications page. For additional information on this topic, please feel free to contact one of the authors of this alert, or your Michael Best attorney.

If you are interested in learning about other provisions included in The Act, the Michael Best Stimulus and Economic Recovery Team is prepared to assist you in understanding the implications and in developing and implementing a strategy to secure the benefits of this unprecedented legislation. Specifically, we will assist you to identify opportunities, prepare appropriate proposals and make targeted contacts to secure funds. We will also work with you to ensure that your applications are tailored to meet your needs and that your funded projects proceed in compliance with award requirements and applicable laws.

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