The American Recovery and Reinvestment Act of 2009 (the "2009 Recovery Act") amends portions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and the health care coverage continuation provisions of the Public Health Safety Act ("PHSA"). Any employer subject to the requirements of COBRA and the PHSA, and any employee who has or will have been involuntarily terminated during the period beginning Sept. 1, 2008 and ending Dec. 31, 2009, will need to take action.
The 2009 Recovery Act makes changes to COBRA and the health care coverage continuation provisions of the PHSA, the most significant of which are briefly described below:
- For a period of up to nine months beginning on or after March 1, 2009, an "assistance eligible individual" (an "AEI"—i.e., any qualified beneficiary whose employment is involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009) is treated as having fully paid premiums for COBRA and PHSA continuation coverage, if the AEI pays 35 percent of the required premium amount.
- The AEI premium subsidy is tax-free for taxpayers with a modified gross income of up to $125,000 ($250,000 in the case of a joint return). For taxpayers with a greater amount of income, a portion of their premium will be treated as taxable income.
- Employers are reimbursed for the 65 percent of the premium its pays for an AEI through an offsetting payroll tax credit.
- Employers must provide each AEI with written notice regarding the availability of subsidized COBRA and PHSA premiums, the availability of an extended election period, and the individual's rights and obligations to receive subsidized COBRA or PHSA continuation coverage. The Department of Labor is required to issue model notices within 30 days.
- An additional COBRA election period allows individuals who did not elect COBRA continuation coverage as of Feb. 17, 2009, but who would otherwise be considered an AEI on that date, to elect COBRA subsidized coverage. An AEI who did elect COBRA coverage as of Feb. 17, 2009, will be able to elect subsidized coverage going forward, but not retroactively. Employers must provide a notice to terminated employees regarding the extended COBRA election period and subsidy.