On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (ARRA). ARRA is an economic stimulus bill designed to address the current economic crisis which includes several important changes to COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985). ARRA provides for a federal Subsidy of 65% of the COBRA continuation coverage premiums (which include group health, dental and vision) for qualified beneficiaries with a qualification date of September 1, 2008 through December 31, 2009.

December 21, 2009, The US Department of Labor released a statement that the Fiscal Year 2010 Defense Appropriates Act, has extended the eligibility period for the ARRA premium reduction for an additional two months (through February 28, 2010) and the maximum period for receiving the subsidy for an additional six months (it has gone from 9 to 15 months).

In anticipation of the many questions that this new legislation will generate, we have compiled this question and answer page. If you have more questions regarding your coverage, please feel free to contact your COBRA Compliance Analyst.

What is ARRA and how does it relate to COBRA?

The American Recovery and Reinvestment Act (ARRA) provides for a federal Subsidy of 65% of the COBRA continuation coverage premiums (which include group health, dental and vision) for qualified beneficiaries with a qualification date of September 1, 2008 through December 31, 2009.

Update: On December 21, 2009, the qualification period was extended an additional 2 months. So rather than ending December 31, 2009, the qualification will run through February 28, 2010.

Who is considered eligible for the ARRA Subsidy?

Those who meet all of the following criteria are considered an assistance eligible individual (AEI):

• the COBRA Continuation Coverage is due to the ‘involuntary’ termination of the covered employee for reasons other than gross misconduct.
• at any time between September 1, 2008 and December 31, 2009, the qualified beneficiary becomes eligible for COBRA Continuation Coverage. (see update below)
• the qualified beneficiary elects COBRA Continuation Coverage

Update: On December 21, 2009, the qualification period was extended an additional 2 months. The qualification dates are now between September 1, 2008 and February 28, 2010.

Who is considered a qualified beneficiary?

Qualified beneficiaries are individuals receiving COBRA continuation of coverage due to a loss of group health plan coverage.  These individuals include the covered employee, the covered employee’s spouse (as defined by federal law), and the covered employee’s dependent children (as defined by the plan).
Qualified beneficiaries have separate election rights under COBRA. Therefore, even if the covered employee does not elect COBRA, a covered spouse or covered child of the involuntarily terminated covered employee will qualify as an “Assistance Eligible Individual”.

Which products are eligible for the Subsidy?

All COBRA products (which include group health, dental and vision) are eligible for the Subsidy with the exception of Health Flexible Spending Accounts.            

When does the Subsidy begin?

If Assistance Eligible Individuals elect COBRA continuation coverage, their coverage will extend back to the ARRA enactment date, February 17, 2009.  However, the maximum COBRA eligibility period is measured from the original COBRA qualifying date which would be the date of “Involuntary Termination Of Employment”.

Do pre-existing conditions still apply?

Any gap in coverage between the date coverage was lost and the enactment date will not be considered a break in coverage for purposes of HIPAA’s pre-existing condition exclusion rules. 

The federally provided COBRA Subsidy is 65% of the amount owed by the “Assistance Eligible Individuals”.  A payment made by the individual equal to 35% of the applicable premium is considered payment in full.  The remainder must be paid by the employer, plan, or insurer and will be subsequently reimbursed by the federal government through payroll tax credits.  The IRS and Treasury are expected to issue additional details on how the payroll tax credit process will work. 

How many months can I receive the Subsidy?

“Assistance Eligible Individuals” AEI were intially entitled to receive the Subsidy for up to nine months. However, if an individual becomes eligible for other group health coverage or Medicare, or reaches the end of his or her maximum COBRA coverage period, his or her entitlement to the Subsidy ends.  Failure of the AEI to provide timely written notice that he or she no longer qualifies for the COBRA Subsidy, is punishable by a penalty equal to 110% of the Subsidy received after becoming eligible for other coverage.

Update: As of December 21, 2009, the Subsidy has been extended to a maximum of fifteen months.

Is there a tax implication for the AEI?

Assistance Eligible Individuals earning more than $145,000 for an individual or $290,000 for a Joint IRS Income Tax return will have their income tax increased by the total amount of the Subsidy they received. AEI’s earning more than $125,000 but less than $145,000 ($250,000 for a Joint but less than $290,000) will have their income tax increased by a percentage of their total Subsidy received in that year. An AEI can waive their rights to the Subsidy, the form and manner to waive their rights is yet to be determined by the Secretary of Treasury.

For more information, you can go to the US Department of Labor's website, www.dol.gov/cobra to review frequently asked questions and fact sheets.

Please Note:
At Combined Services LLC, we have endeavored to stay apprised of all the aspects of this law change through attendance of webinars and through the review of published governmental information. However, if you have any questions or concerns at all, we ask that you contact us at 1 603 227-2020.