March 23, 2009

As you may know, the American Recovery and Reinvestment Act of 2009 contains new COBRA provisions.  The following is a brief summary:

  • A premium reduction (subsidy) applies to qualified beneficiaries who lose coverage due to involuntary terminations between 9/1/08 - 12/31/09.  This is a temporary provision applicable only to involuntary terminations through 12/31/09.
  • There are new notice requirements which are discussed in more detail below.
  • Eligible individuals are entitled to elect COBRA coverage with subsidized premiums.  The individual pays 35% of the COBRA premium; the employer must advance the other 65% on his or her behalf.
  • An eligible individual's subsidy ends after 9 months, upon reaching the end of the maximum period of COBRA coverage, or upon becoming eligible for coverage under another group health plan or Medicare, whichever occurs first.  Note:  the period of subsidy is different from the period of COBRA eligibility, which runs from the qualifying event.
  • There is no premium reduction for periods of coverage prior to February 17, 2009.
  • Eligible individuals involuntarily terminated after September 1, 2008 who have elected COBRA and who pay 100% of the premium in March and/or April 2009 (prior to receiving notice and submitting application for premium reduction) are entitled to recover their overpayment by credit towards subsequent premiums (if the credit can be used within 180 days of the overpayment), or by reimbursement.
  • Eligible individuals who became entitled to COBRA coverage before February 17, 2009 and who did not elect coverage, or who elected but later discontinued coverage, are entitled to a second COBRA election period.
  • There are income limits on eligibility for premium reduction.
  • Employers are reimbursed by the IRS for subsidies they advance, by a credit/offset against federal payroll tax liability.  If subsidies advanced exceed the taxes due, the federal treasury will reimburse the employer for the excess.  For this purpose "payroll taxes" include amounts withheld for federal income taxes and employer and employee FICA taxes.

NOTICE REQUIREMENTS:  Employers must give notice regarding premium reduction and the extended COBRA election period.  Notice must be provided to all individuals incurring a COBRA qualifying event between 9/1/08 - 12/31/09, including those who have already declined COBRA coverage.  Eligible individuals who incurred a COBRA qualifying event prior to February 17, 2009 must be given notice within 60 days from February 17, 2009 (by April 18, 2009).  The Department of Labor (DOL) has prepared four model notices:
1.  General Notice – full version:  Use this notice for 1) all qualified beneficiaries who incurred a qualifying event on or after 9/1/08 who have not been provided a COBRA notice; 2) all qualified beneficiaries  who incur a qualifying event in the future through 12/31/09; and 3) any individuals whose qualifying event occurred on or after 2/17/09 who were provided an old COBRA notice which did not include the new notice requirements and who have not elected COBRA coverage.

2.  General Notice – abbreviated version:  Use this notice for all qualified beneficiaries who incurred a qualifying event on or after 9/1/08 and who are currently enrolled in COBRA coverage (regardless of whether the qualifying event occurred before or after 2/17/09).

3.  Notice in Connection with Extended Election Periods:  Use this notice for all qualified beneficiaries who are or would be eligible for premium reduction due to qualifying events between 9/1/08 - 2/16/09 but who did not elect COBRA coverage or who elected but later discontinued coverage.

4.  Alternative Notice:  This pertains to continuation coverage under state law, not COBRA.

NOTE:  In some circumstances the notice requirements and model notices do not mesh well.  This is because notice must be given with regard to qualifying events on or after 9/1/08 even if the individuals involved are not eligible for premium reduction; and because some of the model notices contain COBRA election materials.  In some circumstances an individual must be given notice when he or she is not eligible for premium reduction or a second election period, and has previously declined COBRA.  In this situation the model general notice (full version) may mislead the individual to believe he or she can elect COBRA coverage at this time; while the abbreviated general notice and the Notice in Connection with Extended Election Periods may not be applicable.  In short, the model notices are not ideal for all situations, and DOL has not commented on the extent to which the model notices can be revised.  For this reason, in some circumstances a precautionary cover letter is advisable, stating that notice is provided for compliance purposes, that eligibility for premium reduction and eligibility to elect COBRA coverage are subject to applicable law, and that the employee can obtain further information from DOL at the website and telephone number included in the enclosed notice. 
The model notices also demonstrate an eligible individual must apply for the premium reduction, and the model notices contemplate hard-copy paperwork to elect COBRA coverage and to apply for premium reduction.
The model notices are available at
Additional DOL information, including questions and answers, can found at
As is often the case, there are additional details to the new COBRA provisions.  Should you desire further guidance, please do not hesitate to contact Ahlers & Cooney Employment Practice Group.


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Nadel, Steven


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