American Recovery and Reinvestment Act COBRA Subsidy

Overview

The stimulus package, which was enacted as the American Recovery and Reinvestment Act of 2009 (ARRA), as amended, temporarily reduces the premium for COBRA coverage for Assistance Eligible Individuals (AEIs). Individuals who are eligible for COBRA coverage because of their own or a family member's involuntary termination from employment or other qualifying event that occurred from September 1, 2008 through May 31, 2010 and who elect COBRA, may be an AEI and eligible to pay reduced premium.

COBRA Subsidy

AEIs electing COBRA continuation coverage will pay only 35% of the full COBRA premiums under their plans for up to 15 months. Companies may recover the subsidy provided to AEIs by taking the subsidy amount as a credit on their IRS Form 941 quarterly employment tax returns. If the credit amount is greater than the taxes due, the Secretary of the Treasury will directly reimburse the company for the excess.

Definition of Assistance Eligible Individuals

ARRA makes the premium reduction available for "assistance eligible individuals." An Assistance Eligible Individual is a COBRA qualified beneficiary who experiences a COBRA qualifying event that is the involuntary termination of a covered employee's employment. The involuntary termination must generally occur during the period that began September 1, 2008 and ends on May 31, 2010. However, a recent amendment to ARRA also provides that an involuntary termination of employment is a qualifying event for purposes of ARRA if the involuntary termination:

• occurs on or after March 2, 2010 and no later than March 31, 2010; and
• follows a qualifying event that was a reduction of hours that occurred at any time from September 1, 2008 through March 31, 2010.

If the AEI becomes eligible for other group health coverage or Medicare he or she will lose their AEI status.

Guidance and other information are available on the Department of Labor’s dedicated COBRA web site at www.dol.gov/COBRA.