On February 17, 2009, the President signed H.R. 1, the American Recovery and Reinvestment Act into law as Public Law 111-5. It included provisions to enhance COBRA including a temporary premium subsidy.


 The ARRA provides a 65 percent subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated (and their families). This subsidy also applies to health care continuation coverage if required by states for small employers.

 To qualify for premium assistance, a worker must be involuntarily terminated between September 1, 2008 and December 31, 2009. The subsidy would terminate upon offer of any new employer-sponsored health care coverage.  Workers who were involuntarily terminated between September 1, 2008 and enactment, but failed to initially elect COBRA within 60 days as required by law, would be given an additional 60 days to elect COBRA and receive the subsidy. In these instances, benefits would be prospective only.

This will have at least some administrative impact on employers. New notices to employees will also be required.

 If the employee pays the employer for COBRA premiums, the employer will be “reimbursed” for the amount of premium subsidy by the federal government.   Such amount will be treated as a credit against the employer’s requirement to make deposits of payroll taxes.  To the extent that such amount exceeds the amount of such taxes, the Department of the Treasury will pay the employer the amount of such excess.  It will be up to the Treasury Department to fill in the details of how the employer would take the credit against payroll tax deposits, how to request payment when it exceeds the tax liability (probably not often, given the employee size threshold), and when it would be paid. 


 Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in 1986.  The law amended the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise might be terminated.

 COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates.  This coverage, however, is only available when coverage is lost due to certain specific events.  Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves.  It is ordinarily less expensive, though, than individual health coverage.

 There are three elements to qualifying for COBRA benefits.  COBRA establishes specific criteria for plans, qualified beneficiaries, and qualifying events:

 Plan Coverage - Group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA.  Both full and part-time employees are counted to determine whether a plan is subject to COBRA.  Each part-time employee counts as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

 Qualified Beneficiaries - A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee's spouse, or an employee's dependent child.  In certain cases, a retired employee, the retired employee's spouse, and the retired employee's dependent children may be qualified beneficiaries.  In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary.  Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries. 

Qualifying Events - Qualifying events are certain events that would cause an individual to lose health coverage.  The type of qualifying event will determine who the qualified beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA.  A plan, at its discretion, may provide longer periods of continuation coverage. 

Qualifying Events for Employees: 

  • Voluntary or involuntary termination of employment for reasons other than gross misconduct
  • Reduction in the number of hours of employment

 Qualifying Events for Spouses: 

  • Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct
  • Reduction in the hours worked by the covered employee
  • Covered employee's becoming entitled to Medicare
  • Divorce or legal separation of the covered employee
  • Death of the covered employee

Qualifying Events for Dependent Children:

  • Loss of dependent child status under the plan rules
  • Voluntary or involuntary termination of the covered employee's employment for any reason other than gross misconduct
  • Reduction in the hours worked by the covered employee
  • Covered employee's becoming entitled to Medicare
  • Divorce or legal separation of the covered employee
  • Death of the covered employee

 Notice Requirements 

Employers must notify plan administrators of a qualifying event within 30 days after an employee's death, termination, reduced hours of employment or entitlement to Medicare. 

A qualified beneficiary must notify the plan administrator of a qualifying event within 60 days after divorce or legal separation or a child's ceasing to be covered as a dependent under plan rules. 

Plan participants and beneficiaries generally must be sent an election notice not later than 14 days after the plan administrator receives notice that a qualifying event has occurred.  The individual then has 60 days to decide whether to elect COBRA continuation coverage.  The person has 45 days after electing coverage to pay the initial premium. 

Qualified beneficiaries must be given an election period during which each qualified beneficiary may choose whether to elect COBRA coverage.  Each qualified beneficiary may independently elect COBRA coverage.  A covered employee or the covered employee's spouse may elect COBRA coverage on behalf of all other qualified beneficiaries.  A parent or legal guardian may elect on behalf of a minor child.  Qualified beneficiaries must be given at least 60 days for the election.  This period is measured from the later of the coverage loss date or the date the COBRA election notice is provided by the employer or plan administrator.  The election notice must be provided in person or by first class mail within 14 days after the plan administrator receives notice that a qualifying event has occurred. 

Basic Continuation Benefits

 COBRA beneficiaries generally are eligible for group coverage during a maximum of 18 months for qualifying events due to employment termination or reduction of hours of work.  Certain qualifying events, or a second qualifying event during the initial period of coverage, may permit a beneficiary to receive a maximum of 36 months of coverage.

 Coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and will end at the end of the maximum period.  It may end earlier if:

  • Premiums are not paid on a timely basis
  • The employer ceases to maintain any group health plan
  • After the COBRA election, coverage is obtained with another employer group health plan that does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary.  However, if other group health coverage is obtained prior to the COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.
  • After the COBRA election, a beneficiary becomes entitled to Medicare benefits.  However, if Medicare is obtained prior to COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.

 Disability extension

 Disability can extend the 18-month period of continuation coverage for a qualifying event that is a termination of employment or reduction of hours.  To qualify for additional months of COBRA continuation coverage, the qualified beneficiary must: 

  • Have a ruling from the Social Security Administration that he or she became disabled within the first 60 days of COBRA continuation coverage
  • Send the plan a copy of the Social Security ruling letter within 60 days of receipt, but prior to expiration of the 18-month period of coverage
  • If these requirements are met, the entire family qualifies for an additional 11 months of COBRA continuation coverage.  Plans can charge 150 percent of the premium cost for the extended period of coverage.

Premium Payment

Group health plans (i.e. the employer) can require qualified beneficiaries to pay for COBRA continuation coverage. The maximum amount charged to qualified beneficiaries cannot exceed 102 percent of the cost to the plan for similarly situated individuals covered under the plan who have not incurred a qualifying event.  In calculating premiums for continuation coverage, a plan can include the costs paid by both the employee and the employer, plus an additional 2 percent for administrative costs. 

Qualified beneficiaries cannot be required to pay a premium in connection with making the COBRA election.  Plans must provide at least 45 days after the election (that is the date the qualified beneficiary mails the election form if using first-class mail), for making an initial premium payment.  If a qualified beneficiary fails to make any payment before the end of the initial 45-day period, the plan can terminate the qualified beneficiary’s COBRA rights.  The plan may establish due dates for any premiums for subsequent periods of coverage, but must provide a minimum 30-day grace period for each payment. 

Plans are permitted to terminate continuation coverage if full payment is not received before the end of a grace period.  If the amount of a payment made to the plan is wrong, but is not significantly less than the amount due, the plan must notify the qualified beneficiary of the deficiency and grant a reasonable period (for this purpose, 30 days is considered reasonable) to pay the difference.  The plan is not obligated to send monthly premium notices, but is required to provide a notice of early termination if continuation coverage is terminated early due to failure to make a timely payment. 

COBRA premiums may be increased if the costs to the plan increase but generally must be fixed in advance of each 12-month premium cycle.  The plan must allow you to pay premiums on a monthly basis if you ask to do so, and the plan may allow you to make payments at other intervals (weekly or quarterly).



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