COBRA generally requires that group health plans sponsored by employers with 20 or more employees offer employees and their families the opportunity for a temporary extension of health coverage where coverage under the plan would otherwise end.  In most cases, individuals electing COBRA continuation coverage are responsible for payment of these premiums.   The American Recovery and Reinvestment Act (the "Act") modifies COBRA to add a limited, but important, exception to the general rule.  If an employee is involuntarily terminated from employment during the period beginning September 1, 2008 and ending December 31, 2009, the employee and his/her dependents may be eligible for a subsidy towards the cost of COBRA coverage.  Specifically, for eligible individuals, 65% othe cost of COBRA coverage will be paid for a maximum period of 9 months.  However, the benefit of the subsidy is phased out for single individuals with adjusted gross income (AGI) of $125,000 and married couples with AGI of $250,000.  

In most instances, the employer will initially cover the cost of the 65% ssidy.  Subsequently, the employer will receive reimbursement in the form of an offset to payroll taxes.  (More detail on this process is to be provided in future regulations or other guidance.)
 
Although reimbursed by the federal government, the subsidy will have a real cost for most employers.  It is expected that the number of individuals who elect COBRA continuation coverage will dramatically increase as a result of the subsidy.  In many cases, COBRA beneficiaries utilize the medical plan extensively, resulting in significant costs.  Claims incurred by COBRA beneficiaries often exceed 150% opremiums paid for such coverage.  Accordingly, the premiums for coverage will likely increase.  
 
To comply with this new law, it is important initially to identify former employees who were involuntarily terminated on or after September 1, 2008.  Those individuals who previously elected COBRA are entitled to a subsidy effective March 1, 2009.  Individuals who did not previously elect COBRA are entitled to a special election period pursuant to the Act.

Employers and insurance companies are also required to draft new COBRA notices providing detailed information about the subsidy.  Model notices will be available from the federal government within the next 30 days. 
 
Attorney Jim Hamilton will further discuss the COBRA subsidy, as well as other health care provisions contained in the stimulus bill, at the upcoming seminar entitled Winds of Change Are Upon Us: Preparing Your Business for a New Era of Employment Law & Regulations.  The seminar will take place on March 18, 2009 at the Renaissance North Hotel, 11925 North Meridian Street, Carmel, Indiana.
 
Please note that this update is not a comprehensive summary of the Act.  Please call a member of the Bose McKinney & Evans Employee Benefits Group  (317-684-5000) or a member of the Bose Public Affairs Group Federal Relations Team (202-470-2393) to learn, not only more information about these provisions, but more information on the ARRA tax and spending provisions overall.