Under the American Recovery and Reinvestment Act of 2009 signed into law by President Obama in February, employers are now required to subsidize 65% of COBRA premiums for up to nine months for many of their employees (and their families). The subsidy law applies to employees who are laid off or fired between September 1, 2008 and December 31, 2009. It does not apply to employees who voluntarily leave their job or who were fired for gross misconduct. It also does not cover employees who are eligible for other group health coverage, such as through a new employer’s plan or a spouse’s plan.
COBRA requires employers with 20 or more employees to allow former employees to elect to continue participation in the employer’s healthcare plan for up to 18 months following termination of employment. Normally, COBRA does not require that the employer continue to pay for the employee’s coverage, even if the employer pays for all or part of the coverage of its employees. In fact, employers can charge employees an extra 2% of the cost of coverage to cover the employer’s administrative costs in keeping the former employee in the plan.
Under the new law, an employee who might normally have to pay 100% of the cost of coverage, will now only have to pay 35% for the first nine months of COBRA coverage. An employee who would normally have to pay 102% will now have to pay 36.3% (35% of 102%).
Information for employers and employees about this new COBRA subsidy law can be found at the IRS website and the Department of Labor website.
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