"COBRA" Subsidy Extended

Overview of the COBRA Subsidy Extension

The American Recovery and Reinvestment Act (ARRA) established a COBRA Subsidy to help laid-off workers maintain health insurance coverage after involuntary termination. A recent amendment to ARRA extends and expands this subsidy, making it important for both employers and employees to understand how the changes apply.

What Is COBRA?

COBRA is a federal law that requires group health plans of employers with 20 or more employees to offer continued health insurance coverage—at the employee’s expense—to qualifying individuals who would otherwise lose coverage due to termination or other qualifying events.

Many states, including Ohio and Kentucky, have enacted COBRA-like laws that extend similar protections to employees of smaller employers.

Original COBRA Subsidy Provisions

As originally enacted under ARRA, the COBRA Subsidy applied to workers who were involuntarily terminated between September 1, 2008, and December 31, 2009, provided their COBRA election became effective by December 31, 2009.

Eligible employees were required to pay only 35% of the COBRA premium for up to nine months. The remaining cost was advanced by the employer and reimbursed through a federal tax credit.

The subsidy was subject to income limits and phased out for individuals with adjusted gross incomes (AGI) above $125,000 ($250,000 for joint filers), and was unavailable for those with AGIs exceeding $145,000 ($290,000 for joint filers).

Key Changes Under the Amendment

The ARRA amendment extends the COBRA Subsidy in several significant ways:

• Eligibility is extended to workers involuntarily terminated through February 28, 2010, even if COBRA coverage becomes effective after that date
• Employees receiving severance benefits that temporarily cover health insurance may later qualify for the subsidy
• The maximum subsidy period is increased from nine months to fifteen months

Retroactive Coverage and Payment Rules

Employees who reached the end of the original nine-month subsidy period before the amendment were often forced to either pay the full premium or discontinue coverage.

Under the amendment:

• Individuals who dropped coverage may retroactively reinstate COBRA coverage
• A grace period allows payment of only 35% of premiums until the later of February 17, 2010, or 30 days after notice of the extension
• For employees who paid the full premium after the original subsidy expired, employers may either refund the excess amount or apply it toward future COBRA premiums

Employer Notice and Compliance Obligations

Employers must update their COBRA notices and administrative procedures to reflect the subsidy extension.

Key notice requirements include:

• Notifying currently eligible individuals within 60 days of the first coverage period affected by the extension
• Providing updated notices to employees who became eligible on or after October 31, 2009, no later than February 17, 2010
• Issuing notices to newly eligible individuals within standard COBRA timeframes

Employers must also establish procedures for handling full premium payments received from individuals who later become subsidy-eligible.

Questions About the COBRA Subsidy Extension?

Claudia Allen regularly advises employers on employee benefits and employment-related matters. If you have questions about the COBRA Subsidy extension and how it applies to your business or workforce, please contact Claudia directly at 513-629-9462.