February 24 , 2009
Changes Impacting the Consolidated Omnibus Budget Reconciliation Act (COBRA) Continuation of Coverage:    

COBRA Subsidy Included in the American Recovery and Reinvestment Act of 2009

The American Recovery and Reinvestment Act of 2009 includes a temporary federal subsidy to cover 65% of the cost of COBRA coverage for eligible individuals. The subsidy is scheduled to become effective for coverage beginning March 1, 2009. 
An eligible participant’s loss of health coverage must be due to involuntary loss of employment (other than by reason of gross misconduct) between September 1, 2008 and December 31, 2009. Eligible family members are also eligible for the subsidy if they lose health insurance coverage due to the employee’s involuntary termination.  The subsidy is not available for individuals entitled to COBRA due to divorce, loss of dependent status, death, or reduction in hours.   The subsidy is 65% of the COBRA premium charged to the participant from and after March 1, 2009. Since it is unlikely that the Department of Labor  (DOL) or the IRS will issue guidance by this date, employers and health plans may charge eligible participants the full COBRA premium for March and April. If the employer chooses to do this, the employer must pay the amount of the subsidy to the eligible participant within 60 days or provide the participant with a credit against future premiums.

The subsidy is initially paid for by the employer who may then claim the subsidy amount as a credit against federal tax withholdings and payroll taxes. The reimbursement can be claimed only if the participant actually paid 35% of the COBRA premium.  The maximum period of subsidized COBRA coverage is nine months, followed by unsubsidized coverage for up to nine more months, for a total of 18 months of COBRA coverage from the date of qualifying event as under current COBRA law.  The subsidy would terminate upon offer of any new employer-sponsored health care coverage or Medicare coverage..
The premium subsidy will be fully phased out for those individuals with modified adjusted gross income of $290,000 for joint return filers and $145,000 for all other filers and is reduced proportionately for individuals with modified gross income of between $250,000 and $290,000 for joint filers and $125,000 and $145,000 for all other filers.  

Further information regarding the new COBRA regulations can be found at the DOL website, www.dol.gov/ebsa/COBRA.html, where you can subscribe to get notices when the DOL posts guidance on the new COBRA requirements.

Employers should take immediate steps to comply with these new requirements, including identifying whether they have former employees eligible for the subsidy and contacting their insurance carriers and/or third-party service providers.  Employers should also modify their COBRA notices. The Secretary of Labor is directed to issue model notices no later than March 19, 2009.