Group health plans often provide terminated employees and their covered dependents coverage through the end of the month of the termination, with the 18-month COBRA continuation coverage period beginning on the first day of the following month.
While employers rarely analyze this design, it slightly extends the maximum COBRA continuation coverage period for an employment termination, because the 18-month COBRA period is offered after the end of the month of termination (when coverage based on employment status is lost) rather than from the date of the COBRA qualifying event (the termination).
Many employers are reviewing how the federal COBRA premium subsidy applies to this common plan design. Will employees who are terminated in December 2009 (and their covered dependents) who would not start COBRA until January 1, 2010 be eligible for the 9-month COBRA premium subsidy?
The answer is no, based on IRS and DOL guidance.
Analysis Under ARRA, IRS Notice 2009-27 and DOL Guidance
Under the American Recovery & Reinvestment Act of 2009 ("ARRA"), COBRA premium subsidies are available for qualified beneficiaries (i) whose qualifying events are involuntary terminations occurring between September 1, 2008 and December 31, 2009, (ii) who are eligible for COBRA within this same time period, and (iii) who elect COBRA continuation coverage.
According to IRS guidance, qualified beneficiaries are eligible for COBRA only when they lose coverage as active employees and COBRA begins. (IRS Notice 2009-27, Q/A 13 "If the loss of coverage is after December 31, 2009, the individual cannot become" eligible for the subsidy.) When coverage is lost "depends on how the employer treats the provision of health coverage for the involuntarily terminated employee." If the employer provides some period of continued health plan coverage on the same basis it covers active employees and then the 18-month COBRA period starts, eligibility for COBRA (and the federal subsidy) "will be considered to occur when the employer's provision of health coverage on the same terms as for similarly situated active employees ends." IRS Notice 2009-27, Q/A-14. The DOL recently posted two questions "regarding current eligibility for the COBRA premium reduction" on its website, which reinforce the IRS' position. See http://www.dol.gov/ebsa/faqs/faq-cobra-arra.html.
Applying this guidance, if the employer's plan (i) extends coverage to all terminated employees (and their dependents) to December 31, 2009 and, (ii) the 18-month COBRA period begins on January 1, 2010, qualified beneficiaries losing coverage in December 2009 as the result of involuntary terminations will NOT be eligible for the subsidy because they are not eligible for COBRA by December 31, 2009.
The Premium Subsidy May be Extended by Congress
To make matters more complicated, several bills have been introduced in Congress that would extend eligibility for the COBRA premium subsidy beyond December 31, 2009. While some of the proposed legislation includes additional COBRA rights (such as 15 months of subsidy), all extend the current December 31, 2009 eligibility cutoff date to June 30, 2010.
Employer Considerations
Based on the above IRS guidance, employers will want to communicate carefully with employees being terminated in December about the availability of the federal COBRA premium subsidy, if it is not extended. Careless communications with employees could arguably promise a subsidy for terminated employees that the government will not reimburse. Employers will also want to review this issue with their COBRA administrators. Finally, employers should monitor the status of the bills that have been introduced to extend the subsidy.
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