COBRA Subsidy and Other Benefits DevelopmentsAdditional Guidance On Federal COBRA Subsidy
Jonathan B. Dubitzky, David A. Guadagnoli, Amy E. Sheridan
Client Advisory, April 17, 2009
As described in our two recent advisories, dated March 27 and February 26, the American Recovery and Reinvestment Act (“ARRA”) generally provides a federal subsidy for the cost of group health plan continuation coverage for up to nine months for employees (and their eligible dependents) who lost or will lose coverage due to an involuntary termination of employment from September 1, 2008 through December 31, 2009. In addition, ARRA provides a special COBRA enrollment election right for some of these individuals. The Internal Revenue Service has recently provided additional guidance on how certain provisions of this new law work.
The Subsidy Calculation. Under ARRA, an “assistance eligible individual” need only pay 35% of the cost of continuation coverage. (For more information on this definition, please see our prior advisory.) The IRS has now clarified that the federal subsidy will only apply to the amount the employee is paying after taking into account any employer provided subsidy.
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