Essential COBRA Subsidy Information

As reported in the February issue of the CDA Update, recent federal legislation has extended the COBRA subsidy for employees involuntarily terminated for reasons other than gross misconduct between Sept. 1, 2008 and Feb. 28, 2010. The Feb. 28 date is extended from Dec. 31, 2009.

For eligible employees electing COBRA coverage, the federal government will pay 65 percent of COBRA premiums. That 65 percent is actually paid by the employer, and the employer is then reimbursed by the federal government through a payroll tax credit. Once an individual elects coverage, the subsidy will last until the earliest of:

1) 15 months; or
2) The individual becomes eligible under another group health plan or Medicare.

Employers are still required to provide notice of the subsidy to eligible employees. The new federal legislation also applies to state-specific laws. In California, that means it applies to organizations with two or more employees.

What Do I Need To Do As An Employer?

Plan sponsors are required to provide information about the COBRA Premium Reduction to individuals who have qualifying events on or after Sept. 1, 2008 through Feb. 28, 2010. The U.S. Department of Labor has published updated model notices to reflect changes under the new law, which can be found at:
www.dol.gov/ebsa/COBRAmodelnotice.html

Additional information on the federal COBRA subsidy and the amendments under the new law can be found at www.dol.gov/ebsa/cobra.html. This site contains resources for both employers and employees. It is also possible to subscribe to the site to receive important e-mail alerts about the COBRA subsidy program. Just click on “subscribe to this site” in the top right hand corner and enter your email address where indicated.

Additional details regarding the tax credit, as well as information on exactly what constitutes an “involuntary termination” can be found on the Internal Revenue Service website at www.irs.gov/irb/2009-16_irb/ar09.html. Employers may also wish to contact their personal tax professional for specific advice about the tax credit.

In March 2009, an article in the CDA Update reported on The American Recovery and Reinvestment Act of 2009, which included the federal subsidy of COBRA premiums payable to eligible terminated employees.