Mar 03, 2009

COBRA Expansion in the Stimulus

The stimulus package -- formally known as the American Recovery and Reinvestment Act of 2009 (ARRA) -- includes a provision (PDF) that benefits those who have lost their jobs in the recent economic downturn: some help with their COBRA payments to continue their health care coverage. Before the ARRA, those who lost their jobs could continue their employer-provided health insurance through COBRA only by paying the full premium. Now, the federal government will subsidize almost two-thirds of the premium amount for up to nine months for certain eligible former employees. Here are a few basic facts on the new law:

Who's Eligible: Those who are involuntarily terminated from September 1, 2008, through December 31, 2009, are eligible for the subsidy, as are their spouses and dependent children. Even those who initially turned down COBRA coverage are eligible: Employers must give them a second chance to elect COBRA coverage by sending them a notice of the new special election period.

Length of Subsidy: The subsidy lasts for up to nine months. However, the subsidy will end sooner if (1) the employee becomes eligible for coverage under another group health care plan, or (2) the maximum period for COBRA coverage -- measured from the date the employee was first eligible, not the date the subsidy began -- ends (this limit applies whether or not the employee actually elected COBRA when first eligible to do so).

How the Subsidy Works: Under the new rules, the eligible former employee may be required to pay only 35% of the premium. The employer must pick up the remaining 65%, for which it may claim a subsidy credit against its payroll taxes on IRS Form 941, Employer's Quarterly Federal Tax Return. If the employee pays less than 35% of the full premium because the employer picks up most of the tab, the amount the employer may claim as a credit is less.

For more information, check out:

  • the IRS page on the new rules
  • the Department of Labor's page on the new rules (which should soon include model forms employers may use to inform employees of the subsidy and their election rights), and
  • the excellent resources available from the Society for Human Resource Management on the subsidy, starting with this comprehensive article (some resources may be available only to members).

Nolo's article New COBRA Rules: Stimulus Package Subsidizes Continued Health Insurance also has more information about eligibility for this health insurance subsidy.