COBRA Alert

In February, Congress passed the American Recovery and Reinvestment Act of 2009 (“ARRA”) which establishes a subsidy for employees who are involuntarily separated from their jobs between September 1, 2008 and December 31, 2009. Public sector employers are covered under the new law.

What Is New?

Workers who have lost their jobs may qualify for a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to nine months. The premium reduction applies only to health coverage beginning on or after February 17, 2009.

Workers who lost their jobs between September 1, 2008 and the enactment of the ARRA, but who failed to elect COBRA because it was unaffordable (or who did elect but are no longer enrolled) will have an additional 60 days to elect COBRA and receive the subsidy.

The premium reduction is payable by the employer in the first instance and is reimbursable to the employer through a tax credit on the employer’s employment taxes. The employer is to use the IRS’s Form 941, Employer’s Quarterly Federal Tax Return, to report the COBRA premium assistance payments and to claim the credit.

Who is Eligible?

A person is eligible if the employee or a member of his/her family: (1) became or is eligible for COBRA continuation coverage at any time between September 1, 2008 and December 31, 2009, (2) elects COBRA coverage, and (3) is eligible for COBRA as a result of the employee’s involuntary termination between September 1, 2008 and December 31, 2009. While individuals whose income exceeds a certain threshold during the tax year in which the subsidy is received may not be eligible for the subsidy, such persons will repay any subsidy received through their own 2009 tax returns.

What Notices Are Required By The Employer?

The plan administrator must notify individuals who have a COBRA qualifying event during the period from September 1, 2008 through December 31, 2009, about the premium reduction. Plan administrators may provide notices separately or along with notices they provide following a COBRA qualifying event. This notice must go to all individuals, whether they have COBRA coverage or not, who had a qualifying event from September 1, 2008 through December 31, 2009. This notice must be provided within 60 days following February 17, 2009.

For a person who was involuntarily terminated between September 1, 2008, and February 16, 2009, who did not elect COBRA when it was first offered (or who did elect but is no longer enrolled) the period for electing COBRA coverage begins on February 17, 2009 and ends 60 days after the plan provides the required notice. This special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee's involuntary termination).

Both the Internal Revenue Service and the U.S. Department of Labor provide further information on their websites.

If you need any further assistance, please do not hesitate to call us.