Employer COBRA Alert: New COBRA Subsidy Mandated for Plans as of March 1, 2009

As part of the American Recovery and Reinvestment Act of 2009 (ARRA), commonly referred to as the Stimulus Legislation and enacted on February 17, 2009, Congress has created a new COBRA subsidy requirement applicable to all group health plans which were previously subject to the COBRA requirements, including self-insured plans. This subsidy is available starting from the first period of coverage following the enactment of ARRA – for most plans this is March 1, 2009.

The subsidy is available to those individuals who became or will become eligible for COBRA because of an involuntary termination occurring between September 1, 2008 and December 31, 2009 (referred to as "assistance eligible individuals" or "AEIs"). Even those individuals who previously declined COBRA coverage or elected coverage but failed to pay premiums are eligible to make a new election and receive the 65% subsidy. Consistent with other initiatives from the Obama Administration, this subsidy is effectively phased out for taxpayers whose modified adjusted gross income is more than $145,000 ($290,000 for joint filers).

Plan Administrators must identify individuals who qualify as AEIs and send notices explaining the availability of the subsidy and the election process within 60 days following the enactment of ARRA. Proposed forms to be used in providing this notice are being developed by the government. Individuals who choose to elect coverage must do so within 60 days of receiving the COBRA notice.

The subsidy is funded in the form of a credit that the employer may take against its periodic payroll tax deposits. The IRS released a revised Form 941 to claim this credit. (Provided below under "Associated File")

The subsidy eligibility will end upon the earliest of: (1) 9 months following the commencement of the subsidy, (2) the expiration of the AEI's maximum period of coverage or (3) the date the AEI becomes eligible for coverage under another group health plan or Medicare.

For more information, read the "Related Article" at left, and contact Brooke Rosen, brooke_rosen@gentrylocke.com [540.983.9445] or David Paxton, david_paxton@gentrylocke.com [540.983.9334].