ARRA COBRA Subsidy Set to End As of December 31, 2009

As employers who have experienced employee terminations within the past fifteen (15) months are aware, the American Recovery & Reinvestment Act of 2009 (“ARRA”) provides a COBRA premium subsidy of 65% for qualified beneficiaries who suffer an “involuntary termination” between September 1, 2008 and December 31, 2009 and who are eligible for COBRA within the same time period and elect such continuation coverage.  The question has arisen whether employees who are terminated in December 2009 and are set to begin COBRA on January 1, 2010 are eligible for this subsidy.

Pursuant to IRS and DOL guidance, the answer is no. In fact, “both the involuntary termination and eligibility for COBRA continuation coverage must occur during September 1, 2008 through December 31, 2009.” See IRS Notice 2009-27,Q/A 13114.  Because COBRA eligibility only begins after an individual ceases to be an active employee, an employee who ceases to be an employee in December 2009 and is first eligible to begin COBRA coverage on January 1, 2010 will not be entitled to the subsidy. See Id.  Accordingly, if the employee and his/her dependents are covered through December 31, 2009, they will not technically become eligible for COBRA until January 2010 and, therefore, will fall outside the ARRA subsidy program.  Employers should be clear on this guidance so that they may properly advise employees and not inadvertently promise anyone a subsidy in 2010.

Employers should also note that Congress is considering certain bills that might extend the COBRA premium subsidy to June 30, 2010.  We intend to keep readers updated on the status of such proposed legislation in future blog posts.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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