COBRA Developments

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The Trade Act of 2002 expands earlier laws that provide trade adjustment assistance (TAA) to individuals who lose their jobs due to trade-related reasons.  Additionally, the Act provides a tax credit of 65% for the cost of medical coverage (including COBRA) and creates a new COBRA election period.  These changes will not apply to all COBRA beneficiaries, but only to certain recipients of TAA or PBGC benefits.

Tax Credit:
Eligible individuals can receive a tax credit of 65% of the cost of COBRA premiums (or other qualified health coverage) beginning December 2002. This tax credit can be claimed on the individual's tax return, or the credit can be "advanced".  In such cases, the individual would only pay 35% of the COBRA premium and the plan administrator would apply for the remainder from the federal government.

COBRA Election Period:
An individual who refused COBRA coverage upon termination could have a second opportunity to elect coverage.  A new 60-day COBRA election period will be created provided the individual is certified for TAA benefits and the election is made within 6 months after the initial loss of health coverage.  Although COBRA coverage would not have to be provided retroactively to the initial termination date, it is not clear as to whether the COBRA coverage period (18, 29 or 36 months) would be applied from the initial termination date or from the new election period.  In either case, the period of time the individual was not covered will not be counted as a break in coverage for HIPAA portability purposes.

Unfortunately, there are many ambiguities in the law as it relates to COBRA administration.  We will keep you updated as guidance from the IRS and DOL is received.