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COBRA Subsidy Extended; Further Extensions Likely

By Stuart Sirkin
January 27, 2010

In the midst of the ongoing health care reform debate, Congress was able to unanimously agree on retroactively extending the Federal 65% COBRA health care premium subsidy for workers involuntarily separated. The original program provided only nine months of subsidy. Thus, for laid-off workers whose federal subsidies started March 1, 2009 (the earliest date possible), November was the last month they could receive the federal subsidy. The original program also did not cover workers who lost their health care after Dec. 31, 2009.

The expansion of the program to those involuntarily separated as late as Feb. 28, 2010, and for a total of 15 months of subsidy is good news for employees who have recently been laid off. Further, the House has passed an additional extension as part of a separate bill that the Senate is expected to take up before the Feb. 28 deadline. The President signed the legislation, which was an amendment to the Department of Defense Appropriations Act of 2010 (P.L. 111-118), on Dec. 19, 2009.

Background

COBRA allows workers who have lost their health care because of a “qualifying event” ' such as separation, reduction of hours, and death of the covered employee ' to purchase up to 18 months of coverage (36 months in certain cases) from the former employer. The employer may generally only charge 102% of the premium paid by active employees (150% for disabled employees). In the case of a self-insured employer, the employer's costs substitute for the premium.

The American Recovery and Reinvestment Act of 2009 (ARRA) established a special program under which the government would subsidize 65% of the COBRA premium for “assistance-eligible individuals” (AEIs). An individual is generally an AEI under ARRA if they were involuntarily separated between Sept. 1, 2008 and Dec. 31, 2009. Beginning with the first premium period after enactment (generally March 1, 2009, for those already involuntarily terminated), AEIs could receive the subsidy for up to nine months.

For AEIs that started receiving the subsidy March 1, 2009, the subsidy ended after the premium for the month of November 2009. Further, under the law, no new individuals could become an AEI (and eligible for the subsidy) after Dec. 31, 2009. The IRS and the Department of Labor issued considerable guidance on the ARRA subsidy program including numerous questions and answers and model notices, but also made it clear the IRS would not question an employer's liberal interpretation of “involuntary termination.”

AEIs received the subsidy by paying only 35% of the premium. Law firms received the federal subsidy for the other 65% by reducing the amount they contributed as employment taxes or by filing for a refund on their Form 941 or Form 941x. All reimbursements for 2009 had to be claimed on the 2009 forms.

Defense Appropriations Extension

The following includes an overview of extensions to the current COBRA allowances:

Length of the Subsidy. The provision extends the COBRA subsidy to 15 months from nine months. The provision is retroactive; it will apply starting in December for those who lost the subsidy after November.

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