The Congress passed legislation (H.R. 3326), which President Obama signed into law on Saturday, December 19,2009, extending the original federal COBRA subsidy created by the American Recovery and Reinvestment Act of 2009 (ARRA). 

Background 

Under the ARRA, the federal government pays sixty-five (65%) percent of COBRA premiums for up to nine (9) months for employees who were involuntarily terminated between September 1, 2008, and December 31, 2009. This subsidy was set to expire at the end of this year and has already started to end for individuals who have been receiving this subsidy since March.

New Extension 

Assistance-eligible individuals ("AEIs") involuntarily terminated from employment on or before February 28, 2010, can now receive the subsidy.  The subsidy will remain at sixty-five (65%) percent of the premium, but the maximum subsidy period will expand from nine (9) months to fifteen (15) months.  Only those individuals losing health coverage due to involuntary employment termination will continue to qualify for the COBRA subsidy. The following is a summary of the new law:

New Extended Eligibility Period:  AEIs involuntary terminated on or before February 28, 2010 will now be eligible for the subsidy, instead of December 31, 2009.  The new law eliminates the requirement that COBRA coverage must commence before COBRA subsidy sunset date (December 31, 2009 before the new law is effective and February 28, 2010, after).  Eligibility for the COBRA subsidy will only be conditioned on a qualifying event occurring on or before February 28, 2010, without regard to when the COBRA coverage period begins.  This means that AEIs involuntarily terminated on or before December 31, 2009, who become eligible for COBRA coverage after December 31, 2009 will now be COBRA subsidy eligible.  This new law reverses earlier guidance (IRS Notice 2009-27, Q/A-10).

Longer Subsidy Period: The maximum COBRA subsidy period has been extended from nine (9) months to fifteen (15) months.   Please remember that the new law does not change the maximum COBRA period that an individual is entitled to under COBRA or state continuation.

Notices For Those Who Exhausted Their COBRA Subsidy: Any AEI who exhausted their original nine (9) month COBRA subsidy period before the new law takes effect can receive the COBRA subsidy for another six (6) months if they remain an AEI and their maximum COBRA period has not ended.   AEIs who either dropped their COBRA coverage or kept their COBRA coverage but paid the full unsubsidized premiums must be notified that they may pay reduced premiums for retroactive coverage or receive credit for or reimbursement of overpayment.  These notices must be provided within sixty (60) days of the AEI dropping or first overpaying for COBRA.   Such AEI must pay for coverage no later than sixty (60) days after enactment (December 19, 2009) or February 17, 2010 (or if later, thirty (30) days after the notice was provided).