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COBRA Subsidy Extended Through May 31, 2010

April 20, 2010
Employee Benefits Advisory

The American Recovery and Reinvestment Act of 2009 (ARRA), as amended, provides for premium reductions for health benefits under COBRA. Under ARRA, “assistance eligible individuals” pay only 35% of their COBRA premiums; the remaining 65% is initially paid by the employer and then reimbursed to the employer through a tax credit. The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.

Eligibility for the Premium Reduction

An "assistance eligible individual" is an employee or a member of his/her family who elects COBRA coverage timely following a qualifying event that is:

  • A termination of employment occurring between September 1, 2008 and May 31, 2010; or
  • A reduction of hours that occurs between September 1, 2008 and May 31, 2010 that is followed by an involuntary termination of employment that occurs between March 2, 2010 and May 31, 2010.

    A reduction of hours is a qualifying event when the employee and his/her family lose coverage because the employee, though still employed, is no longer working enough hours to satisfy the group health plan’s eligibility requirements.

    Generally, the maximum period of continuation coverage is measured from the date of the original qualifying event. This is of particular importance to individuals who experience an involuntary termination following a reduction of hours. The total COBRA period runs from the date of the reduction in hours; only individuals who have additional periods of COBRA coverage remaining after they are terminated from employment following a reduction in hours are entitled to the premium reduction.

Those who are eligible for other group health coverage (such as a spouse's plan or new employer’s plan) or Medicare are not eligible for the premium reduction.

Employers will want to modify their COBRA notices and administrative procedures to reflect these changes.

If you have any questions, please contact any member of our Employee Benefits Practice Team.

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