Update on the COBRA Subsidy and When it Will End

November 4, 2009

We have posted on the 65% COBRA subsidy several times since the American Recovery and Reinvestment Act (ARRA) was enacted.  ARRA provided for a premium subsidy for COBRA continuation health benefits to "assistance eligible individuals."  Those individuals are defined as an employee or member of his/her family who is eligible for COBRA continuation coverage:


1)      at any time between September 1, 2008 and December 31, 2009

2)      elects COBRA coverage, and

3)      is eligible for COBRA as a result of an involuntary termination between September 1, 2008 and December 31, 2009. 

Some changes may be effected if the Extended COBRA Continuation Protection Act of 2009, H.R. 3930, introduced in the House of Representatives on October 26, 2009 and referred to Committees on Education and Labor, Energy and Commerce, and Ways and Means, is enacted.   

Following are some of the highlights and possible changes with regard to the eligibility requirements and timing of the COBRA subsidy.

Upon Eligibility for Group Coverage or Medicare

Eligibility for the premium reduction ends when an individual becomes eligible for other group health coverage or Medicare.  It is the recipient of the subsidy who is responsible for reporting eligibility.  If an individual continues to receive the subsidy after he/she is eligible for other group health coverage, the individual may be subject to an Internal Revenue Code penalty of 110% of the subsidy provided after they became eligible for the new coverage.  Be aware that anyone who suspects that someone may be receiving the subsidy after eligibility for group coverage or Medicare may report this to the IRS using form 3949-A Information Referral.  These provisions would not be affected by the proposed Extended COBRA Continuation Protection Act of 2009.

After Nine Months of Subsidy

ARRA provides that the subsidy ends after nine months or when the maximum period of COBRA coverage ends, whichever occurs first. The proposed Extended COBRA Continuation Protection Act of 2009 would extend the nine months to fifteen months. It would also extend the maximum period of COBRA continuation coverage to 24 months.

Year End Issues

Is the subsidy available to an employee whose termination occurs in December of 2009, but the loss of coverage occurs after December 31, 2009?  The IRS answered with a clear no in Question 13 of Notice 2009-27 .  If the loss of coverage is after December 31, 2009, the individual is not an assistance eligible individual, even if he is terminated before December 31.  The 65% assistance payment currently only applies to individuals who both experience an involuntary termination prior to December 31, 2009 and who are eligible for COBRA continuation coverage before December 31, 2009. 

This is relevant due to the widespread practice of continuing active employee medical coverage through the end of the month in which a termination of employment occurs, and starting COBRA eligibility the first day of the subsequent month.  Any employee of an employer who has adopted this common administrative practice and who is involuntarily terminated in December of 2009 will not be eligible for the 65% COBRA subsidy since eligibility for COBRA continuation coverage would only begin on January 1, 2010, one day beyond the December 31, 2009 deadline. 

Absent additional guidance from the IRS or an extension of the ARRA deadline by Congress, employers who wish to avoid this result can consider changing their plan rules and administrative practices to start COBRA coverage on the last day of the month of an involuntary termination of employment instead of the first day of the following month.  Or, employees who are to be involuntarily terminated in December, can be terminated in November. 

If H.R. 3930 is enacted into law, it would extend the December 31, 2009 deadline to June 30, 2010, providing that assistance eligible individuals are those who are eligible for COBRA between September 1, 2008 and June 30, 2010 as a result of an involuntary termination between September 1, 2008 and June 30, 2010.