On February 17th, 2009, President Obama signed into law the American Recovery and Reinvestment Act (the “Act” or "ARRA"). Generally the “Act” is a stimulus bill, but also includes several important changes to COBRA.
Changes to COBRA
COBRA Continuation Coverage Assistance Under ARRA
The American Recovery and Reinvestment Act of 2009 (ARRA), as amended, provides for premium reductions for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly called COBRA. Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. To qualify, individuals must experience a COBRA qualifying event that is the involuntary termination of a covered employee's employment. The involuntary termination must generally occur during the period that began September 1, 2008 and ends on May 31, 2010. (An involuntary termination of employment that occurs on or after March 2, 2010 but by May 31, 2010 and follows a qualifying event that was a reduction of hours that occurred at any time from September 1, 2008 through May 31, 2010 is also a qualifying event for purposes of ARRA.) The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.
There is legislation pending in Congress at this time to extend the subsidy for employees involuntarily terminated after May 31, 2010. Please check back for updates.
Summary of ARRA
Any employee that experiences an involuntarily separation from employment after September 1, 2008 will qualify for a 65% premium coverage by the employer for self and all eligible dependents, for 15 months starting the day after his or her last day covered on group insurance. The employer will then receive payroll tax credits to cover the amount paid out on COBRA employees using a new updated 9-41 Form. The remaining 35% of the premium amount will be the employees’ responsibility.
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