School/Employment Law
COBRA Subsidies and the American Recovery and Reinvestment Act
Tuesday, March 24, 2009
Contributed by: Fred Stormer
The American Recovery and Reinvestment Act of 2009 (“ARRA”), signed February 17, 2009, affects most employees who become eligible for COBRA due to an involuntary termination on or after September 1, 2008 through December 31, 2009. Those employees who are eligible and participate in COBRA may receive a 65% subsidy of their COBRA premium for a maximum of 9 months. Eligible employees pay 35% and the employer (in most cases) must front the 65% cost of the governmental subsidy. In turn, the employer can recoup the loss through a payroll tax credit.
Who is eligible for the subsidy?
Qualified beneficiaries are those employees who were involuntarily terminated between September 1, 2008 and December 31, 2009, and actually elect COBRA coverage. These qualified beneficiaries are considered Assistance Eligible Individuals (“AEIs”). The ARRA provides a “second chance” rule for AEIs terminated between September 1, 2008 and February 17, 2009 who failed to elect COBRA, or who elected COBRA but are now no longer enrolled.
What is an involuntary termination?
The answer is unclear, as no formal statute or guidance has been issued yet. However, it is believed that any separation of employment initiated by the employer will be considered an involuntary termination for purposes of the COBRA subsidy. For example, an employee who chooses to resign rather than be fired would likely be an involuntary termination and will qualify as an AEI.
When Does the Subsidy Period Begin and End under the ARRA?
Although the ARRA became effective immediately upon being signed by the President on February 17, 2009, the subsidy coverage period likely occurs when the AEI first becomes eligible for COBRA coverage. Accordingly, if an employer has paid insurance benefits through the end of the month, and COBRA coverage becomes available on the first day of the next month, the subsidy period likely begins on the first day of the month as well. The subsidy coverage ends after 9 months, unless the AEI’s COBRA rights are terminated sooner or the AEI is eligible for coverage under another group health plan. Please note that the AEI does not need to be covered under a group health plan, only eligible for coverage (even if enrollment depends on the AEI’s payment of a premium). For example, an AEI who becomes employed elsewhere and is eligible to participate in the new employer’s plan is no longer considered an AEI. Likewise, an AEI who becomes eligible under a spouse’s group health plan, even if required to make a substantial co-pay to participate, is also not entitled to the ARRA COBRA subsidy.
There are a multitude of questions that could arise concerning COBRA subsidies and the ARRA, the answers to which depend of the facts of each particular situation. For more information, visit the Department of Labor’s COBRA information web page, which includes COBRA ARRA Model Notices. Please do not hesitate to contact an Underwood attorney with any questions or issues you want to discuss.
This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.
