labor lawAdivision of labor law center

Good news for HR pros who complain that the COBRA subsidy has placed an unfair burden on employers: the federal government, not employers, will be responsible for enforcing some of the subsidy provisions.

 

Under the ARRA or American Recovery and Reinvestment Act of 2009, employees involuntarily terminated between September 1, 2008 and December 31, 2009 qualify for a 65% subsidy on extended group health insurance.

 

However, the COBRA subsidy has income limits. Reduced subsidies apply to individuals with an adjusted gross income (AGI) of $125,000 or more and couples (filing jointly) with AGI  of  $250,000 or more. Individuals with adjusted gross incomes over $145,000 and couples with income over $290,000 for the year they receive COBRA do not qualify for the subsidy.

 

The good news is that the IRS (or Internal Revenue Service) and not the employer is responsible for enforcing these regulations.

 

An individual who earns more than the income limits can still take advantage of the COBRA subsidy. However, he or she must repay the COBRA subsidy when they file their 2009 tax returns. This is still a good deal for high-income workers, because they are essentially borrowing 65% of the COBRA premium from the federal government, interest free, for up to one year.

 

Under the COBRA subsidy regulations, an employee can also permanently waive the right to premium reduction. However, if an individual does so, he or she cannot later take advantage of the COBRA subsidy. This is true, even if the employee’s earnings for the year are less than $125,000.

 

COBRA permits employees who are terminated and their dependents to opt to continue the group health insurance. Normally employees must pay up to 102% of the insurance premium, even any portion previously paid by the employer.

 

However, under the ARRA COBRA subsidy, the employee pays just 35% of the insurance premium. The  remaining 65% of the premium is paid by the employer. Employers can then take a tax credit on their quarterly payroll taxes, to offset the subsidy. In this way, the federal government is picking up the tab for the COBRA subsidy, without additional tax filings or reimbursement paperwork. 

 

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