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Revised COBRA Rules Require Action by April 17

The American Recovery and Reinvestment Act of 2009, a.k.a., the "Economic Stimulus Bill," (the "Act") provides for significant temporary COBRA premium reductions for eligible employees and imposes new notice requirements on employers. The Act becomes effective on March 1, 2009, and provides for COBRA premium reductions from March 1, 2009 through December 31, 2009.

COBRA Premium Reductions

The COBRA premium reduction is available to "assistance eligible individuals." An "assistance eligible individual" is the employee or a member of his or her family who (1) is eligible for COBRA continuation coverage at any time between September 1, 2008 and December 31, 2009; (2) elects COBRA coverage; and (3) is eligible for COBRA as a result of the employee's involuntary termination for any reason except gross misconduct between September 1, 2008 and December 31, 2009.

Eligible individuals pay only 35 percent of their COBRA premiums, and the remaining 65 percent must be covered by the coverage provider (either the plan, the employer or the insurer, depending on the situation). The federal government will reimburse the coverage provider who subsidizes the 65 percent premium reduction by means of a tax credit.

New COBRA Notice Requirements

Employers must amend the COBRA election notices they send to employees (and qualified beneficiaries) when a qualifying event occurs to include information on the premium reduction. In addition, supplemental notices must be given by no later than April 17, 2009 to all former employees (and their qualified beneficiaries) who have been involuntarily terminated since September 1, 2008, informing them of the opportunity for a premium discount. This applies to those eligible individuals who previously elected COBRA (whether or not they currently have COBRA coverage), as well as to those who did not originally elect COBRA. The Department of Labor is expected to provide model notice language by March 17, 2009.

Special Election Period

A special 60-day COBRA election period applies to those eligible individuals who did not previously elect COBRA coverage, or who elected coverage but have since discontinued it. The coverage becomes effective as of March 1, 2009, and continues for the remainder of the period that would have applied had the individual elected COBRA when first eligible.

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