The American Recovery and Reinvestment Act of 2009 requires employers to subsidize COBRA coverage by paying 65 percent of COBRA premiums for employees who involuntarily lost or lose their employment between September 1, 2008 and December 31, 2009. The subsidy will last up to 9 months for each eligible COBRA participant. Employers will be reimbursed by a payroll tax credit.

The subsidy is meant to help employees keep their employer sponsored group health insurance through COBRA. Employees who choose to continue their health insurance benefits through COBRA pay up to 102 percent of the cost of health insurance premiums.

Those who continue health insurance benefits through COBRA are typically unhealthy and cannot purchase individual health insurance do to pre-existing conditions or ongoing medical care. For those who are healthy, purchasing individual medical insurance is a much better alternative.

Individual health insurance is an affordable and flexible alternative to continuing employer sponsored group insurance through COBRA. With COBRA, you are continuing the health insurance plan you had while employed. These plans are used as employee recruiting and retention tools and as a result are usually rich in benefits. A typical employer sponsored group medical plan offers low deductibles and co-pay's for doctor visits and prescription drugs. This translates into hefty monthly premiums, as much as $1500 per month for a family of four. As an example, most employer sponsored group medical plans provide maternity benefits, electing COBRA means you'll pay for those benefits even though you may never use them. Exploring your options with individual health insurance can save you thousands of dollars.

There is no doubt that the subsidy will provide temporary relief to those who must elect COBRA. If the intention of the government is to help people maintain needed health insurance coverage, a tax credit for purchasing individual medical insurance would have been a great addition to the legislation.

• When did the American Recovery and Reinvestment Act (ARRA) take effect?


• Who is eligible for the subsidy?


• When will the subsidy start?


• Is there an income limitation for the subsidy?


• How does the subsidy work for the employer or plan sponsor?


• How long does the subsidy apply?


• Who is eligible for the additional 60-day election period?


• What additional notice requirements does ARRA create?

When did the American Recovery and Reinvestment Act (ARRA) take effect?

President Obama signed the American Recovery and Reinvestment Act into law on February 17, 2009. ARRA is effective on March 1, 2009.

Who is eligible for the subsidy?

Assistance eligible individuals (AEIs) are eligible for the subsidy. They consist of employees who are COBRA qualified beneficiaries and meet specific criteria.
1. The individual must experience a qualifying event that is an involuntary termination of employment
2. The qualifying event must take place between September 1, 2008 and December 31, 2009, and
3. The individual must elect COBRA during their initial election period or the additional, 60-day election period.
The COBRA subsidy also applies to employees who involuntarily lost their employment as far back as September 1, 2008. Employees who fall into this category but did not initially elect COBRA coverage will have an additional, 60-day period to elect COBRA with reduced premiums.

When will the subsidy start?

March 1, 2009 marks the first period of coverage for most employers and AEIs. A "period of coverage" is the monthly period for which COBRA premiums are charged.

Is there an income limitation for the subsidy?

Yes. All AEIs are eligible for the subsidy, but certain high-income individuals could be required to repay the subsidy as an additional tax called a "recapture tax".
AEIs who earn less than $125,000 (single) or $250,000 (married) are not subject to the recapture tax. AEIs who earn between $125,000 and $145,000 (single) and $250,000 and $290,000 (family) are eligible based on a sliding scale. All subsidy amounts for those who earn over $145,000 (single) and $290,000 (family) must be
claimed as a recapture tax.

How does the subsidy work for the employer?

Employers must pay the 65 percent subsidy beginning March 1, 2009. The employer is then entitled to a credit toward payroll taxes.

How long does the subsidy apply?

The subsidy will apply for the first period of coverage beginning March 1, 2009, and last for nine months.

Who is eligible for the additional 60-day election period?

Employers must allow an additional 60-day election period to any qualified beneficiary who qualifies for the subsidy but did not initially elect continuation coverage (for example, an employee who involuntarily lost their employment in October, 2008). The additional election period must be offered to those individuals who initially declined or who elected continuation coverage and later terminated the coverage. Coverage for those individuals who elect during the additional election period will become effective for coverage March 1, 2009. They are not retroactively covered to their original loss of coverage date.

What additional notice requirements does ARRA create?

Two additional notices must be sent. The first notice is to those who are subsidy-eligible and have already elected COBRA coverage. It will advise them of the subsidy and how it works.
The second notice will go to those who are eligible for the additional, 60-day election period to inform them of the opportunity to elect continuation coverage with subsidized premiums.