COBRA Subsidies Under the American Recovery and Reinvestment Act of 2009

The American Recovery and Reinvestment Act (ARRA) of 2009 results in, among other things, substantial amendments to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). Among other things, the ARRA provides that “assistance eligible individuals” (“AEI”) are only required to pay 35% of the health insurance premium charged under a plan. Employers are responsible for paying the remaining 65%. However, the employer ultimately receives reimbursement from the government in the form of a credit against income tax withholding amounts and FICA taxes.

An AEI must meet certain criteria in order to qualify for the reduced 35% premium payment. In order to qualify, the individual must
– be eligible for continuation coverage at any time during the period from September 1, 2008 through December 31, 2008, and elect COBRA coverage;
– have been terminated as a result of an involuntary termination of employment;
– not be eligible for Medicare; and
– not be eligible for coverage under another group health plan.
For AEIs who were terminated between September 1, 2008 and February 16, 2008 and were offered, but did not elect, continuation coverage or elected such coverage, but subsequently terminated it, they may have the right to an additional 60-day period within which to elect COBRA coverage under the new amendments.
In addition to the criteria set forth above, certain high income individuals may receive the benefit of a reduced premium payment subsidy, or none at all depending upon income levels for the years in which they were terminated. Thus, if the amount earned by an individual is more than $125,000 (or $250,000 for married couples filing joint federal tax returns) the value of the subsidy may be reduced. For individuals who earned $145,000 ($290,000 for married couples filing jointly), the value of the subsidy is eliminated.
The Department of Labor has prepared new “Model” COBRA notices and election forms that take into account information concerning the subsidy. Employers are required to issue new notices that take into account such information by April 18, 2009.
For additional information concerning the new law and regulations, you can visit the Department of Labor website.

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