The Trade Act of 2002 created a health care tax credit (“HCTC”) for certain individuals who become eligible for trade adjustment assistance (“TAA eligible individuals”), as well as for certain retired employees who are receiving pension payments from the Pension Benefit Guaranty Corporation (“PBGC recipients”). Under the original HCTC provisions, eligible individuals could either claim a tax credit or receive advance payment of 65% of the premiums they pay for qualified health insurance, including COBRA continuation coverage. Special COBRA rights, including a second opportunity to elect COBRA coverage, also apply to TAA-eligible individuals and PBGC recipients.
The American Recovery and Reinvestment Act of 2009 (“ARRA”) made several amendments to these provisions, including a temporary increase in the amount of the credit (to 80% of the premiums) and a temporary extension of the maximum period of COBRA continuation coverage for both TAA-eligible individuals and PBGC recipients. Due to an impasse in Congress, however, the ARRA extension expired as of February 13, 2011, and the credit reverted back to the original 65%.
On October 21, 2011, the President signed into law the Trade Adjustment Assistance Extension Act of 2011 (the “Extension Act”). The Extension Act temporarily extends the HCTC provisions applicable to TAA-eligible individuals and PBGC recipients through December 31, 2013. It also retroactively reinstated the tax credit – effective for coverage months beginning after February 12, 2011 – and increased it from 65% to 72.5%. Note, however, that the ability to receive advance payment of this increased percentage appears to be available only prospectively (for coverage months beginning on or after November 20, 2011). Both the special COBRA election opportunity and the extension of the maximum period of COBRA coverage were also reinstated.
Although many employers may have no employees directly affected by the Extension Act, they should still review their COBRA notices and plan documents to ensure that any description of the HCTC provisions remains accurate.