U.S. Department of Labor
Employee Benefits Security Administration
February 26, 2009
The American Recovery and Reinvestment Act of 2009 (ARRA) provides for premium reductions and additional election opportunities for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly called COBRA. Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. The premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months.
COBRA
COBRA gives workers who lose their jobs, and thus their health benefits, the right to purchase group health coverage provided by the plan under certain circumstances.
If the employer continues to offer a group health plan, the employee and his/her family can retain their group health coverage for up to 18 months by paying group rates. The COBRA premium may be higher than what the individual was paying while employed but generally the cost is lower than that for private, individual health insurance coverage.
The plan administrator must notify affected employees of their right to elect COBRA. The employee and his/her family each have 60 days to elect the COBRA coverage, otherwise they lose all rights to COBRA benefits.
Note: COBRA generally does not apply to plans sponsored by employers with less than 20 employees. Many States have similar requirements for small plans providing benefits through an insurance company. The premium reduction is available for plans covered by these State laws.
Changes Regarding COBRA Continuation Coverage Under ARRA
Premium Reduction: The premium reduction for COBRA continuation coverage is available to “assistance eligible individuals”.
An “assistance eligible individual” is the employee or a member of his/her family who:
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is eligible for COBRA continuation coverage at any time between September 1, 2008 and December 31, 2009;
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elects COBRA coverage; and
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is eligible for COBRA as a result of the employee’s involuntary termination between September 1, 2008 and December 31, 2009.
Those who are eligible for other group health coverage (such as a spouse’s plan) or Medicare are not eligible for the premium reduction. There is no premium reduction for premiums paid for periods of coverage prior to February 17, 2009.
ARRA treats assistance eligible individuals who pay 35 percent of their COBRA premium as having paid the full amount. The premium reduction (65 percent of the full premium) is reimbursable to the employer, insurer or health plan as a credit against certain employment taxes. If the credit amount is greater than the taxes due, the Secretary of the Treasury will directly reimburse the employer, insurer or plan for the excess.
The premium reduction applies to periods of coverage beginning on or after February 17, 2009. A period of coverage is a month or shorter period for which the plan charges a COBRA premium. The premium reduction starts on March 1, 2009 for plans that charge for COBRA coverage on a calendar month basis. The premium reduction for an individual ends upon eligibility for other group coverage (or Medicare), after 9 months of the reduction, or when the maximum period of COBRA coverage ends, whichever occurs first. Individuals paying reduced COBRA premiums must inform their plans if they become eligible for coverage under another group health plan or Medicare.
Special COBRA Election Opportunity: Individuals involuntarily terminated from September 1, 2008 through February 16, 2009 who did not elect COBRA when it was first offered OR who did elect COBRA, but are no longer enrolled (for example because they were unable to continue paying the premium) have a new election opportunity. This election period begins on February 17, 2009 and ends 60 days after the plan provides the required notice. This special election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee’s involuntary termination). COBRA coverage elected in this special election period begins with the first period of coverage beginning on or after February 17, 2009. This special election period opportunity does not apply to coverage sponsored by employers with less than 20 employees that is subject to State law.
Notice: Plan administrators must provide notice about the premium reduction to individuals who have a COBRA qualifying event during the period from September 1, 2008 through December 31, 2009. Plan administrators may provide notices separately or along with notices they provide following a COBRA qualifying event. This notice must go to all individuals, whether they have COBRA coverage or not, who had a qualifying event from September 1, 2008 through December 31, 2009.
Individuals eligible for the special COBRA election period described above also must receive a notice informing them of this opportunity. This notice must be provided within 60 days following February 17, 2009.
Expedited Review of Denials of Premium Reduction: Individuals who are denied treatment as assistance eligible individuals and thus are denied eligibility for the premium reduction (whether by their plan, employer or insurer) may request an expedited review of the denial by the U.S. Department of Labor. The Department must make a determination within 15 business days of receipt of a completed request for review. The Department is currently developing a process and an official application form that will be required to be completed for appeals.
Switching Benefit Options: If an employer offers additional coverage options to active employees, the employer may (but is not required to) allow assistance eligible individuals to switch the coverage options they had when they became eligible for COBRA. To retain eligibility for the ARRA premium reduction, the different coverage must have the same or lower premiums as the individual’s original coverage. The different coverage can not be coverage that provides only dental, vision, a health flexible spending account, or coverage for treatment that is furnished in an on-site facility maintained by the employer.
Income limits: If an individual’s modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for joint filers), then the amount of the premium reduction during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), the amount of the premium reduction that must be repaid is reduced proportionately. Individuals may permanently waive the right to premium reduction but may not later obtain the premium reduction if their adjusted gross incomes end up below the limits. If you think that your income may exceed the amounts above, consult your tax preparer or contact the IRS at www.irs.gov.
This fact sheet has been developed by the U.S. Department of Labor, Employee Benefits Security Administration, Washington, DC 20210. It will be made available in alternate formats upon request: Voice phone: 202.693.8664; TTY: 202.501.3911. In addition, the information in this fact sheet constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.
what about children who are no longer covered by the parents insurance because they are no longer a student? do they get the 35% as well since they are now on their own and may not have any income? can they go in cobra on their parnts company with the 35% or do they have to get it on their own?
Children aging out of a group health plan is a COBRA qualifying event when the group is subject to COBRA. This means they would be eligible for COBRA coverage. However, it is not a qualifying event for the purposes of becoming an Assistance Eligible Individual under the American Reinvestment and Recovery Act of 2009 (ARRA). Thus, the child(ren) would not be eligible for the premium subsidy.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
I received 6 months of severance pay (which included regular withholding for medical etc.) from April 2008 – Oct 2008 which ended in Oct 2008. I’ve been receiving unemployment benefits since Oct 2008 then and have had to pick up Cobra Insurance (cobra qualifying event date was 11/01/08, even though termination date was 4//08). A question, will we be able to receive the 65% assistance for Cobra payments in the stimulus bill. This would help greatly since we had to pay about $5,000 in January 2009 (to pick up coverage from 11/01/08 through 02/28/09).
Though we cannot provide legal advice and suggest you contact your former employer or their COBRA administrator (if any), from your brief description, it appears that you would be eligible for the premium subsidy (thoug we cannot guarantee your eligibility) provided you are an Assistance Eligible Individual, which is a COBRA “qualified beneficiary” who meets all of the following requirements:
- Is eligible for COBRA continuation coverage at any time during the period beginning September 1, 2008 and ending December 31, 2009;
- Elects COBRA coverage (when first offered or during the additional election period), and
- Has a qualifying event for COBRA coverage that is the employee’s involuntary termination during the period beginning September 1, 2008 and ending December 31, 2009.
Importantly, Qualifying events are certain events that would cause an individual to lose health coverage. The type of qualifying event will determine who the qualified beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA. A plan, at its discretion, may provide longer periods of continuation coverage.
Moreover, to be eligible for COBRA coverage, you must have been enrolled in your employer’s health plan when you worked and the health plan must continue to be in effect for active employees. COBRA continuation coverage is available upon the occurrence of a qualifying event that would, except for the COBRA continuation coverage, cause an individual to lose his or her health care coverage.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
Linda, since your COBRA was not processed through our firm’s services, we cannot give you specific guidance. However, generally, we find employers who choose to provide funding of a former employee’s COBRA premium for some period of time (i.e., an offset), require the former employee to elect, in writing, COBRA first, in order to receive such premium offset.
Once the former employee has made his/her election and the employer’s premium supplemental funding runs out (e.g., after the 6-months you described), the former employee would be responsible for picking up the premiums, thereafter and for the remainder of the COBRA coverage duration, without having to complete any additional paperwork. If the former employee is elibile for the premium subsidy, it seems that such subsidy would be avialable for the lesser remainder ot the premium subsidy period or the end of the former employee’s COBRA coverage. However, you will need to contact your employer or their administrator about their specific requirements.
The premium subsidy is only available if the COBRA coverage start date was/is on or after September 1, 2008. Therefore, the premium subsidy would not be applicable in your situation. Please refer to the following text from the Department of Labor:
An assistance eligible individual is a COBRA “qualified beneficiary” who meets all of the following requirements:
- Is eligible for COBRA continuation coverage at any time during the period beginning September 1, 2008 and ending December 31, 2009;
- Elects COBRA coverage (when first offered or during the additional election period), and
- Has a qualifying event for COBRA coverage that is the employee’s involuntary termination during the period beginning September 1, 2008 and ending December 31, 2009.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
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I am a teacher that was laid off in June of 2008 but my health insurance was paid for until August 20th, so my cobra would have been available on September 1, 2008. I called the District and they said I didn’t qualify because I was laid off in June. But since I qualified for Cobra in September, wouldn’t that qualify me for this benefit.
The qualifying event date must be on or after 9/1/08 and on or before 12/31/09. It sounds as though your qualifying event date was prior to 9/1/08.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
Please advise. I had stroke on 8/28/08 and collected NJ State Disability until 2/09. Was advised in February 2009 that my position was no longer available to me and started collecting NJ State Unemployment in February, 2009 when I was considered employable. Have been paying COBRA since 8/08. Am I eligible for a premium reduction based upon this information? Please advise. Thank you.
what are examples of “gross misconduct”?
How do you get the reduction on COBRA through the stimulus package???????????
What happens to employees who did not elect when laid off and are now back to work? The employer has a 6 month waiting period for rehires. Are they eligible for COBRA now thru ARRA or do they need to wait?
What if the organization (in this case a nonprofit) dissolves? Can the employee still receive the reduction in COBRA premiums?
If the organization “dissolves” and the group plan no longer exists, then there would not be any plan for the COBRA continuant to go onto and he/she would be without such coverage.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
Gentleman:
Received my information from former employer today. They are telling me I must pay the reduced premiums back to a March 1st start date in order to obtain the reduced premium coverage? Is this correct? If so, why? We delayed medical care due to being uninsured.
Secondly, we’ve obtained other coverage for our children. Will we be allowed to lower our coverage to just my spouse and me?
The American Recovery & Reinvestmen Act of 2009 (ARRA) premium subsidy is effective on the first of the month following the ARRA enactment date of February 17, 2009, which would be March 1, 2009. This effective date is the only available date for those making a “Second election” (i.e., picking up cobra that had previously been declined or ended early).
You should be permitted to make your election for coverage, effective March 1, 2009, for just you and your spouse. You are not required to cover all qualified beneficiaries (i.e., dependents who were on the plan the day before your qualifying event date).
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
You really should call us and let us handle your COBRA. For $95 annual fee and $25 per qualifying event letter, you can’t beat it and our web-based system makes it a snap to process qualifying event notices in a 1-2 minutes. Plus, we take care of letter printing, mailing via proof-of-mailing, document archival, and toll-free customer service (i.e., you would have all these questions answered by our customer service center the moment you need it opposed to waiting until we respond to the public on this blob). Call us at 1-800-945-5513 or email info@cobracontrol.com. In the meantime, here are your answers…
The returning employees would need to make an election for the COBRA in accordance with ARRA regulations, which would make such COBRA election effective March 1, 2009. Remember, you need to provide them the ARRA notice even if they are returnig to work b/c providing the notice is not based on the current employment status, it is based on when they had their loss of coverage. Then, they would be eligible for Cobra for the 18-month duration. Their COBRA coverage could be in palce during their new hire waiting period and would be eligible for the ARRA premium subsidy beginning with March 1, 2009, and until the earlier of the end of their COBRA coverage or December 31, 2009 (when the subsidy ends).
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
Your employer should provide you with a notice, as prescribed by the American Recovery & Reinvestment Act of 2009 (ARRA). That notice, if it meets the Department of Labor’s model notice standard would explain how you obtain the premim subsidy.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
We are not lawyers and are not in a position to define “gross misconduct.” To our knowledge “gross misconduct” is not a defined term but ends up being determined by a court’s find of th facts and circumstances. You need to contact a lawyer to obtain the appropriate information.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
Is there a stimulus package for COBRA that can be extended after the 18 months?
No. The premium subsidy, at this time, is provided for up to a maximum of 9-months.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
Members of a major city Opera Studio Program are on a yearly contract, and are treated as employees ot the Opera with full benefits, including health care. The Opera has the option each year of renewing the contract or not. If it does not renew the contract, does this constitute an “involuntary termination?”
It seems that such termination would be “involuntary” because the Opera Studio made the discretionary and unilateral decision to terminate employment regardless of the type of employment contract. From our understanding of the COBRA regulations, length of an employment contract is not a mitigating element in determining COBRA eligibility. Don’t let the “length of the employment contract” foul you up in determining loss of coverage. Think of it this way: did the employee have COBTA-eligible benefits (e.g., medical, dental, etc.), and, if so, did the employee lose coverage by the employer terminating employment?
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
If an employee claims to be injured by a Workman’s Compensation Injury, and the Co. is disputing the WC Injury, is the employee eligible for the 35% reduction of COBRA benefits?
IRS Notice 2009-27 (a copy is available on this blog’s left menu system) provides the following Q&:
Q-4. Does involuntary termination include an employer’s action to end an
individual’s employment while the individual is absent from work due to illness or
disability?
A-4. Yes. Involuntary termination occurs when the employer takes action to
end the individual’s employment status (but mere absence from work due to illness or
disability before the employer has taken action.
Therefore, if you as the employer have not terminated the employees employment or they have not given you notice, then they are not eligible for COBRA, and thus not eligible for a premum subsidy. If you terminate the employee’s employment, this would be an involuntary separation and the would be eligible for the premium subsidy. If the employee gives you notice they are terminating their employeent with your firm, then this would be a voluntary separation and not eligible for the premium subsidy. Please check with your counse to confirm this information before taking any action.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
To be eligible for COBRA, amonth other things (e.g., employer is subject to COBRA), the reduction in hours must result in a loss of COBRA-qualified coverage (e.g., medical, dental, vision, pescription, or FSA).
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA, a State’s “Mini-COBRA,” or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.
How does one apply for the subsidy? My employer knows nothing about it and I am just now setting up my COBRA insurance extension.
thanks
Mark
First, the subsidy is only available to employees who are Assistance Eligible Employees (see Q3 on our page: http://cobracontrol.com/regulations/economic-stimulus-bill-pre-presidential-signing/faqs-for-employers-about-cobra-premium-reduction-under-arra/). If you meet these eligibilty requirments, you your employer should bill you only 35% of the full monthly premium, and it is the employer who recovers the 65% of the premium, as explained in the instructions for the goverment’s Form 941 (see http://cobracontrol.files.wordpress.com/2009/02/i941instructions1.pdf for a copy).
The information contained herein is for informational purposes only and is not intended as legal advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009.
I am recently divorced (12/9/09 was date of final decree and qualifying life event change). I had been covered under husband’s group health insurance where he works, but he refused to carry me on his Cobra plan, so I have to do this on my own. Will I qualify for the premium reduction program, since I make less than $60k a year?
Any word yet on extending cobra to 24 months or if you’re 55 or older extending cobra until eligibility for medicare kicks in?
I am an employer who is paying the 65% of the previous employees COBRA payments. My question is we have an outside company that provides all the information for us to the ex employee and charges the ex employee an administrative fee. Currently the outside company is deducting the 65% that my agency owes on not only the monthly premium from the health insurance invoice but also on the administrative fee that they are charging the ex employee. For example my agency is paying 65% on, let’s say, $300 per month that it costs us to cover the ex employee plus 65% on the, let’s say, $7 per month administrative fee charged by the outside company. I don’t mind paying the 65% on the monthly premium, but is my agency responsible to pay 65% of the administrative fee also. I am paying 65% of it AND the ex employee is paying the full $7.00. Please let me know.
The regulation allows for the administrative fee, up to 2% of the premium, to be included as part of the 65% subsidy.
The information contained herein is for informational purposes only and is not intended as legal or tax advice, nor is it intended to advise you of your obligations under ERISA, COBRA, HIPAA or the American Recovery and Reinvestment Act of 2009. It should not be used or relied upon as the basis for any action or choosing inaction. Consult an experienced benefits attorney or tax professional about your specific situation before deciding on any course of action or inaction.