COBRA and the 2009 Recovery Act

COBRA Premium Subsidy: 2009 ARRA Changes and Current Rules

The American Recovery and Reinvestment Act of 2009 (ARRA) introduced temporary financial assistance to help eligible workers maintain health insurance coverage after involuntary job loss during the Great Recession.

One of the law's important provisions was a temporary 65% reduction in COBRA continuation coverage premiums for qualifying individuals.

The 2009 ARRA COBRA premium subsidy has expired and is no longer available. However, the underlying federal COBRA continuation coverage law remains in effect for covered group health plans.

This article explains the historical ARRA subsidy, how it operated, and the COBRA requirements employers should understand today.

What Was the 2009 ARRA COBRA Premium Subsidy?

The American Recovery and Reinvestment Act was signed into law on February 17, 2009.

ARRA established a temporary premium assistance program under which eligible individuals generally paid 35% of their qualifying COBRA continuation coverage premiums.

The remaining 65% was reimbursed to the eligible employer, insurer, or plan through the applicable federal tax credit mechanism.

The original subsidy was available for up to nine months. Subsequent legislation extended the maximum premium assistance period to 15 months for qualifying individuals.

Who Qualified for the ARRA COBRA Premium Reduction?

Eligibility for the historical ARRA subsidy generally depended on several factors:

• The individual experienced a qualifying involuntary termination of employment during the applicable statutory eligibility period.
• The individual was eligible for qualifying COBRA or certain comparable state continuation coverage.
• The individual elected continuation coverage as required.
• The individual satisfied applicable income and other eligibility requirements.
• The individual was not disqualified by eligibility for certain other group health coverage or Medicare.

The original eligibility period began September 1, 2008. Subsequent legislation extended eligibility for qualifying involuntary terminations through May 31, 2010.

These historical eligibility dates no longer establish access to an active federal premium subsidy.

How Did the 65% COBRA Subsidy Work?

Under the historical ARRA program, qualifying individuals generally paid 35% of the applicable COBRA premium, while the remaining 65% was covered through the federal premium assistance mechanism.

For example, if the applicable monthly COBRA premium was $800:

• Full monthly COBRA premium: $800
• Individual's 35% share: $280
• Federal subsidy covering 65%: $520

This example illustrates the historical ARRA subsidy and does not represent a current COBRA premium assistance program.

When Did the ARRA COBRA Subsidy End?

The statutory eligibility period for new qualifying involuntary terminations ended May 31, 2010.

Individuals who qualified during the applicable period could continue receiving premium assistance for the authorized duration, subject to eligibility rules.

The ARRA subsidy was temporary and has expired.

Employers should not use the historical 35% employee premium amount when calculating current COBRA premiums unless a separate, applicable assistance arrangement provides that benefit.

What Is COBRA Continuation Coverage?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) establishes continuation coverage rights for certain employees and family members who would otherwise lose employer-sponsored group health coverage following qualifying events.

Federal COBRA generally applies to group health plans maintained by private-sector employers with at least 20 employees on more than 50% of their typical business days during the previous calendar year.

COBRA also applies to covered state and local government health plans under separate federal administration.

Certain plans, including federal government plans and church-related plans, are generally outside the federal COBRA framework.

What Events May Qualify an Employee for COBRA?

Qualifying events may include:

• Termination of employment for reasons other than gross misconduct.
• Reduction in working hours resulting in loss of coverage.
• Death of a covered employee.
• Divorce or legal separation from a covered employee.
• A dependent child losing eligibility under the group health plan.
• Certain circumstances involving Medicare entitlement.

The applicable qualifying event determines which beneficiaries may elect continuation coverage and how long coverage may last.

How Long Does COBRA Coverage Last?

COBRA continuation coverage generally lasts 18 months following qualifying employment termination or reduction in hours.

Other qualifying events may provide up to 36 months of continuation coverage for eligible spouses and dependent children.

Under certain conditions, an 18-month coverage period may be extended because of a qualifying disability determination or second qualifying event.

Employers and plan administrators should review the applicable continuation coverage rules and plan documents.

How Much Does COBRA Coverage Cost?

Under ordinary federal COBRA rules, a group health plan may generally charge a qualified beneficiary up to 102% of the applicable cost of coverage.

The additional 2% represents an allowable administrative charge.

Different premium rules may apply during certain disability extensions or when an employer voluntarily subsidizes continuation coverage.

Unlike the expired ARRA program, ordinary COBRA does not generally provide an automatic federal 65% premium reduction.

COBRA Employer and Plan Administrator Notice Requirements

Federal COBRA establishes several notice and disclosure requirements for covered group health plans.

Depending on the circumstances, required notices may include:

• COBRA general notice explaining continuation coverage rights.
• COBRA election notice following a qualifying event.
• Notice of unavailability of continuation coverage when applicable.
• Notice of early termination of continuation coverage when applicable.

Employers and plan administrators have different responsibilities for providing and distributing required notices.

Notice deadlines depend on the type of qualifying event, plan administration arrangements, and applicable federal rules.

Is COBRA a Mandatory Workplace Wall Poster?

Federal COBRA generally requires specific notices to be furnished to eligible individuals rather than requiring a universal COBRA poster to be displayed on a workplace wall.

Employers should distinguish employee benefits notification obligations from traditional workplace posting requirements.

Providing a COBRA information poster does not automatically satisfy the obligation to deliver required COBRA notices to qualified beneficiaries.

Do Small Employers Have COBRA Requirements?

Federal COBRA generally applies to private-sector employers meeting the applicable 20-employee threshold.

However, some states establish continuation coverage requirements for smaller employers, often referred to as state continuation coverage or mini-COBRA laws.

Employers should review the requirements applicable to their state, group health plan, and workforce.

Frequently Asked Questions About COBRA

Is the 65% ARRA COBRA subsidy still available?

No. The temporary premium assistance program established under the American Recovery and Reinvestment Act of 2009 has expired.

How much of the COBRA premium must employees pay?

Under ordinary federal COBRA rules, qualified beneficiaries may generally be charged up to 102% of the applicable coverage cost. Employers may voluntarily subsidize premiums, and special rules may apply in certain circumstances.

Does COBRA apply to employers with fewer than 20 employees?

Federal COBRA generally applies to covered private-sector group health plans maintained by employers meeting the applicable 20-employee threshold. State continuation coverage laws may apply to smaller employers.

How long can employees keep COBRA coverage?

Coverage generally lasts 18 or 36 months, depending on the qualifying event and beneficiary. Certain extensions may apply.

Are employers required to display a COBRA poster?

Federal COBRA generally requires delivery of specified notices rather than a universal workplace wall poster. Employers should follow applicable plan disclosure and notification requirements.

Can employees choose Marketplace coverage instead of COBRA?

Employees losing job-based health coverage may qualify for a special enrollment period through the Health Insurance Marketplace. They should compare eligibility, coverage, costs, and enrollment deadlines before selecting an option.

Official COBRA Compliance Resources

Employers and employees can find additional information through the U.S. Department of Labor:

• Employer's Guide to COBRA Continuation Coverage
• COBRA Continuation Coverage FAQs
• Health Insurance Marketplace

Additional Workplace Compliance Resources

Labor Law Compliance Center provides federal and state workplace posting products and educational resources for employers throughout the United States.

Explore our Federal Labor Law Posters and State and Federal Combination Labor Law Posters for applicable workplace notices.

Employers can also learn about our Poster Replacement Plan for assistance managing qualifying workplace poster revisions.

Compliance note: This article explains historical ARRA premium assistance and general COBRA continuation coverage requirements. The 2009 ARRA subsidy has expired. Employers should consult current Department of Labor guidance, applicable state laws, and their plan administrators when determining present obligations.