COBRA Subsidy Rules Clarified

On Tuesday, February 17, 2009, President Obama signed the American Recovery and Reinvestment Act into law. Included in the Act was a provision that may affect companies which are required to offer COBRA to former employees: the Health Insurance Assistance for the Unemployed provision

Here are the major components of the Act that are clear:

• A 65 percent subsidy toward the purchase of health insurance will be available to individuals:
  • who have been involuntarily terminated from their employment between September 1, 2008 and December 31, 2009, and
  • who earn less than $125,000 (single) or $250,000 (couples) annually.

• The subsidy will be good for a nine-month period.
• The Treasury Department will administer the subsidy, providing employers with a credit against their payroll taxes to cover the cost of the subsidy.
• While there is no “look-back provision” for current COBRA Participants, qualified individuals who were involuntarily terminated and initially declined COBRA coverage will be allowed to reverse their earlier decision. Specifically, a special election period will be offered during which they may elect COBRA coverage and thereby receive the subsidy.
• It will be a good idea to identify any individuals who were involuntarily terminated from your employment during the time period detailed above.

Now that this is law, the DOL is expected to release guidance concerning this provision. This change increases the complexity and risk associated with staying compliant with COBRA rules. It is very important to keep up-to-date with these new regulations.

Don’t hesitate to call me with your questions.