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The IRS recently issued new regulations regarding the COBRA Subsidy under the ARRA.

As most employers know by now, the most recent stimulus package included a provision to provide continued healthcare at just 35% of the usual premium, to employees who are laid off between September 1, 2008 and December 31, 2009. The COBRA subsidy continues for 9 months.

The most recent IRS regulations provide guidelines on several key subjects, including the definition of involuntary termination, the calculation of premium reduction and other issues.

Under the ARRA, an employee is entitled to a COBRA subsidy if they meet the income guidelines and are involuntarily terminated between September 1, 2008 and December 31, 2009. According to the IRS regulations, an employee who terminates employment due to the employers material adverse actions, qualifies for the COBRA Premium Reduction. For example, an employee who accepts a severance package rather than be laid off, would qualify for the COBRA subsidy.

In another example, an employee who quit rather than accept a significant reduction in wages or hours, would qualify for the COBRA premium reduction.

Layoffs, whether temporary or permanent, where the employees hours are effectively (more…)

As daily readers of this blog know, the ARRA or American Recovery and Reinvestment Act of 2009 provides for extended COBRA coverage at reduced cost for many unemployed workers.

COBRA, or the Consolidated Omnibus Budget Reconciliation Act of 1985, permits employees to extend their group health insurance coverage for up to 18 months when they lose coverage due to unemployment, a reduction in hours, divorce, or similar circumstances. COBRA also applies to dependents who lose group health insurance coverage for similar reasons, or due to the employee’s death. Employees who are fired for gross misconduct are not eligible for COBRA coverage.

The big news is that ARRA allows employees to pay just 35% of their usual COBRA premium. It also gives eligible employees a special period to sign up for COBRA coverage. This COBRA premium reduction covers any worker who has lost their job between September 1, 2008 and December 31, 2009.

Under the COBRA Premium Reduction, the employee can pay just 35% of the usual COBRA premium. The employer pays the remaining 65% of the premium, and then takes a tax credit on the quarterly federal payroll taxes. In this way, the federal government is picking up the tab on 65% of the employees group health insurance premium, and there is no gap in healthcare coverage.  

The COBRA Premium Reduction under the 2009 stimulus package applies for a maximum of 9 months.

Employees who did not opt to take advantage of COBRA coverage have a second chance (more…)