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Employment Law StrategistLJN NewslettersNewsSections

The COBRA Subsidy in the Stimulus Package

By Karla Grossenbacher and John Burgess
March 30, 2009

On Feb. 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (“ARRA” or the “Act”). The Act creates new obligations for employers under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”). Under COBRA, employers must provide covered individuals who participate in group health plans the opportunity to elect to continue group health plan coverage if such coverage is lost due to termination of employment or another qualifying event. Generally, such coverage must be offered to covered individuals for a period of up to 18 months at no more than 102% of the cost of health care coverage (the total cost of continued health care coverage) plus a 2% administrative fee.

Under ARRA, certain individuals will now be eligible for a subsidy from the federal government for up to 65% of the cost of their COBRA premiums. In light of the current economic downturn, the COBRA subsidy is an attempt by the Obama administration to provide more affordable health insurance to certain individuals who have involuntarily lost their jobs. The subsidy is a temporary measure, and it applies only to individuals who have been involuntarily terminated. The subsidy is not available to individuals who retire, otherwise voluntarily leave their employment, or become eligible for COBRA continuation coverage because of a reduction in hours that is not a termination of employment.

There are several steps employers need to take now to comply with the new COBRA obligations under ARRA.

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