COBRA Subsidy Available for Reduction in Hours Followed by Involuntary Termination

March 10, 2010

There is a second bite at the COBRA apple for employees who initially lost group health plan coverage as a result of a reduction in hours of employment during the period beginning September 1, 2008, which is followed by an involuntary termination of employment on or after March 2, 2010. These individuals (and their affected family members) would normally not be eligible for COBRA continuation of coverage because they were not covered by the health plan on the day before the termination of employment. However, the Temporary Extension Act of 2010 extends the availability of COBRA continuation of coverage, and the 65% COBRA subsidy, where there is a reduction in hours (resulting in a loss of coverage) followed by an involuntary termination of employment.

If the employee did not make a COBRA election when eligible as a result of the reduction in hours, or made the election and later dropped coverage, the involuntary termination of employment is treated as a qualifying event. However, the 18 month period of COBRA continuation is considered to have begun at the reduction in hours qualifying event. Therefore, the COBRA subsidy for involuntary terminations is only available for the difference between 18 months and the number of months of COBRA available after the loss of coverage due to reduction in hours.

For example, if a reduction in hours qualifying event occurred on 11/30/2009, COBRA would have begun on 12/1/2009 and would end on 5/31/2011. If that individual had an involuntary termination on 3/9/2010 (with the loss of coverage at the end of the month in which the termination occurred, 3/31/2010), the post-termination COBRA continuation would be offered from 4/1/2010 through 5/31/2011 (18 months – 4 months of reduction-of-hours COBRA = 14 months). Because the entire post-termination COBRA period is less than 15 months, the 65% COBRA subsidy will be available for the entire 14-month period.

The COBRA administrator must provide a notice describing this new right to elect subsidized COBRA to qualified beneficiaries who lost group health plan coverage as a result of reduction in hours on or after 9/1/2008 and who are terminated between 3/2/2009 and 3/31/2009 (proposals in Congress would extend this date to 12/31/2009). The notice must be provided within 60 days following the involuntary termination of employment.