President Obama signed legislation March 2, 2010, that provides another extension of eligibility for federal subsidies of COBRA health care premiums.  The new law, the Temporary Extension Act of 2010 (TEA), immediately extends eligibility for the 15-month 65 percent COBRA premium subsidy to individuals involuntarily terminated from March 1 through March 31, 2010.  Prior to TEA, the subsidy was only available for individuals who were involuntarily terminated between September 1, 2008, and February 28, 2010.  Meanwhile, Congress continues to consider legislation that would provide a longer extension of the subsidy eligibility period.

      TEA also revises and clarifies other provisions of the COBRA subsidy law, which was originally enacted on February 17, 2009, as part of the American Recovery and Reinvestment Act of 2009 (ARRA).  One of the most widely-discussed revisions, effective for periods of coverage beginning after March 2, 2010, is a broadening of the definition of Assistance Eligible Individuals (AEIs).  This portion of TEA provides that: 

• AEIs now include individuals who lose their group health coverage due to a reduction of hours at any time between September 1, 2008, and March 31, 2010, and who are later involuntarily terminated on or after March 2, 2010 (prior to enactment of TEA, only individuals who lost their group health coverage as a direct result of an involuntary termination were eligible to benefit from the subsidy);
• The subsidy for these AEIs would only be paid for periods of COBRA coverage beginning after March 2, 2010;
• These AEIs must receive a notice, distributed during the 60-day period after the AEI is terminated, including information regarding their eligibility for the subsidy;
• As with the original ARRA provisions, this broadening of the AEI definition would entitle affected AEIs who either did not make a COBRA election or who discontinued COBRA coverage before their involuntary termination to a "second chance" COBRA election. Although the effective date of coverage (if elected) will be retroactive only to the date of the involuntary termination, the duration of the COBRA entitlement (generally 18, 29 or 36 months, as applicable) will be measured from the date of the original reduction in hours resulting in the loss of group health plan coverage; and
• Affected AEIs who take advantage of the "second chance" election will receive protection regarding pre-existing conditions similar to those who took advantage of this election under the original ARRA provisions, so that the period between the "reduction in hours" qualifying event and the date of the involuntary termination is disregarded when determining whether a 63-day gap in coverage exists.

Some unanswered questions remain with respect to this change.  For example, TEA does not specify whether the reduction in hours which results in the actual loss of coverage must also be an involuntary reduction, nor does it address coordination of the termination of subsidy rights if the AEI had other health plan coverage between the AEI's reduction in hours and involuntary termination of employment.

      Other changes made by TEA include:

• Clarification that the maximum subsidy period is calculated from the first day of subsidy coverage, rather than the first day of the month during which the AEI begins receiving the subsidy; 
• New provisions which take effect immediately that permit the Treasury or Labor Departments and any affected individual to sue for enforcement of an agency's determination of subsidy eligibility and which provide for penalties of up to $110 per day for each failure of a plan sponsor to comply within 10 days after receipt of the agency's determination; and 
• Incorporation and strengthening of a safe harbor previously included in informal IRS Q&As.  If an employer's determination that an individual's termination is involuntary is based on a reasonable interpretation of the laws and guidance and the employer maintains documentation supporting the determination, including an attestation of the involuntary nature of the termination, the termination will be deemed to be an involuntary termination.  The informal protection provided in the previous Q&A was limited to assurance that the IRS would not challenge the determination solely with respect to whether the employer was entitled to claim a payroll tax credit for the subsidy.