On December 19, 2009, President Obama signed the Department of Defense Appropriations Act, 2010 (DDAA), which, among other things, extended and enhanced the COBRA premium subsidy established earlier this year. (See our prior reports from February 19, March 19 and April 8, 2009, regarding the COBRA subsidy.) The DDAA makes five important changes to the COBRA subsidy rules.

First, the DDAA extends the deadline by which the COBRA-qualifying event (involuntary termination of employment) must occur to be eligible for the 65 percent subsidy from December 31, 2009 to February 28, 2010.

Second, the DDAA extends the total length of time an Assistance Eligible Individual can receive the 65 percent subsidy from nine months to 15 months.

Third, the DDAA clarifies that an individual will be eligible for the 65 percent subsidy as long as the COBRA-qualifying event (involuntary termination of employment) occurs by February 28, 2010, and the individual is entitled to COBRA coverage as a result of that event. Previously, the law required the individual to be both involuntarily terminated and entitled to COBRA coverage on or before the last qualifying date. Thus, under the DDAA, an employee involuntarily terminated before February 28, 2010, but who receives employer-paid coverage that extends beyond February 28, 2010, and is then offered COBRA coverage, will still qualify for the 65 percent subsidy.

Fourth, the DDAA includes transition provisions. Specifically, Assistance Eligible Individuals who terminated their COBRA coverage when their nine-months of subsidized premiums ended can have the coverage resumed retroactively, provided they pay their portion of the subsidized premium for the interim months by February 17, 2010, or 30 days from receipt of the new required notice discussed below, whichever is later. Additionally, Assistance Eligible Individuals who exhausted their nine-months of subsidized coverage, but continued to pay the full COBRA premium, are entitled to a retroactive credit or refund for what are now overpayments (and the employer is entitled to a corresponding tax credit or refund for the 65 percent subsidy it pays).

Fifth, plan administrators must issue new notices explaining the extended and enhanced subsidy provisions: Specifically, a notice must be issued to all individuals who experienced a COBRA-qualifying termination of employment between October 31, 2009 and December 19, 2009, explaining the new provisions. Additionally, plan administrators must issue a notice to all Assistance Eligible Individuals who dropped COBRA coverage or paid the full premium for it after the individual's nine-month subsidy period ended, explaining that they are now eligible to reinstate coverage retroactively at the subsidized rate, or receive a credit or refund of any overpayment. Finally, all COBRA notices issued for involuntary terminations of employment that occur after December 19, 2009, must include the new provisions.

These foregoing changes are effective immediately. The Department of Labor has indicated that it will post new information on the notice requirements, fact sheets and frequently asked questions in the near future at www.dol.gov/cobra.