ARRA Provides for COBRA Premium Assistance and Creates New Notice Requirements

As part of the American Recovery and Reinvestment Act of 2009 (“ARRA”), employees who are involuntarily terminated between September 1, 2008, and December 31, 2009 (referred to as “assistance eligible individuals”), may be entitled to reduced COBRA premiums for up to nine months. Employers can recoup the subsidy payment by taking a credit on payroll taxes.

The subsidy applies to the first period of COBRA continuation coverage beginning after February 17, 2009 (the effective date of the ARRA), during which the assistance eligible individual has COBRA continuation coverage in effect. If an assistance eligible individual was involuntarily terminated after September 1, 2008, and did not elect COBRA continuation coverage or elected COBRA continuation coverage but coverage was terminated before February 17, 2009, he or she is entitled to a new COBRA election period that begins on February 17, 2009, and ends sixty days after the plan administrator sends notice of the extended election period. If the assistance eligible individual elects COBRA continuation coverage in this new election period, coverage begins in the first period of coverage after February 17, 2009, but the maximum period is determined as if coverage had been elected at the time of the original qualifying event.

The ARRA requires plan administrators to modify COBRA election notices or provide separate notices to inform involuntarily terminated employees of the new election period and the opportunity for reduced premiums. Those who incur a qualifying event after February 17, 2009, can be provided notice of the right to the reduced premiums in the plan's general COBRA notice or through a separate notice. Those who incurred a qualifying event prior to February 17, 2009, must be provided a separate notice advising of the right to the extended election period and reduced premiums. The ARRA includes specific provisions that must be included in the notices.