labor lawAdivision of labor law center

The COBRA subsidy is one of the most notable features of the ARRA or American Recovery and Reinvestment Act signed into law on February 17, 2009. 

 

The employee will pay just 35% of the usual COBRA premium. Under this plan, employees who lose healthcare coverage due to terminate will qualify for a 65% government subsidy on continued group insurance coverage under COBRA.

 

A new U.S. Department of Labor COBRA subsidy fact sheet outlines this program.

 

Under this program, the employer still pays the entire healthcare premium to the insurance company. The employer can then deduct 65% of the total premium from his or her payroll taxes.

 

Suppose a former employee of the XYZ Corp. normally pays $900 for COBRA coverage. Under the ARRA COBRA subsidy, the employee pays 35% of that amount, or $315. The employer pays the remaining 65% of the premium, or $585. However, the employer can deduct $585 from his or her quarterly payroll taxes.

 

The IRS has issued a new tax Form 941 for quarterly payroll taxes specifically for employers to use, due to the COBRA subsidy. Complete IRS (Internal Revenue Service) info on the COBRA subsidy is available at here.

 

The subsidy is available only for employees who are laid off or fired. Employees who voluntarily resign are not eligible for the COBRA subsidy. Employees who are eligible for coverage under Medicare or a different group plan, such as a spouse’s insurance plan, are not eligible for the COBRA subsidy.

 

Questions can be directed to a U.S. Department of Labor COBRA Benefits Advisor at 866-444-3272, although employers report long waits. Employers with questions regarding COBRA coverage or the subsidy can post them in the comments section of this article, or on our sister site at www.humanresourceblog.com.

 

The subsidy applies only to COBRA coverage since February 17, 2009, when the ARRA was signed into law. Employees who paid COBRA premiums for coverage prior to February 17, 2009 will not receive a subsidy on the previous premiums, but may qualify for COBRA subsidies for 9 months beginning February 17, 2009.

 

 

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