In recent weeks, both the Department of Labor and the Department of the Treasury have issued further guidance regarding the COBRA premium subsidy provisions under The American Recovery and Reinvestment Act of 2009 ("ARRA"). This Benefits Alert summarizes some of the key points in recent guidance and some common questions asked by employers and health plan administrators as they prepare to provide ARRA compliant COBRA notices by April 18, 2009.


ARRA amended the health care continuation provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") to provide a subsidy of 65% of the COBRA premiums for employees who were involuntarily terminated between September 1, 2008 and December 31, 2009. ARRA also permits any such individual who had a Qualifying Event between September 1, 2008 and February 16, 2009 and who did not elect continuation coverage (or who dropped coverage) a second opportunity to re-elect COBRA continuation coverage.

As discussed in our February and March Benefits Alerts, employers and plan administrators have been waiting for guidance on (1) the definition of "involuntary termination" and (2) the content of required notices. (See "COBRA Subsidy for Involuntary Terminations Under The American Recovery and Reinvestment Act of 2009,"2/20/09 and "COBRA Subsidy … Further DOL/IRS Guidance …," 3/5/09)

Notice 2009-27- IRS Guidance on Involuntary Terminations

In Q&As 1-9 of its Notice 2009-27, the IRS stated that "an involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee's implicit or explicit request, where the employee was willing and able to continue performing services." Whether a termination is considered to be involuntary is based on all the surrounding facts and circumstances.

The Q&As contained in the Notice address a number of circumstances where an involuntary termination will or may be deemed to occur. These circumstances include:

  • Employer fails to renew a contract, if employee is willing and able to continue providing services;
  • Employee resigns for good reason because employer causes a "material negative change in the employment relationship" (such as an employer-initiated reduction in hours);
  • Employee's termination is designated as "voluntary" but the facts and circumstances indicate that employer would have terminated employee's services and employee knew he would be terminated ("constructive terminations");
  • A layoff, furlough, or suspension which reduces employee's hours to zero and results in a loss of health coverage (regardless of recall rights);
  • Employer action to terminate employment while employee is on illness or disability leave;
  • Retirement where absent the retirement employer would have terminated employee's services and employee knew she would be terminated;
  • Termination for cause other than for gross misconduct;
  • Resignation as a result of a material change in the geographic location of employment;
  • Lockout; and
  • Buy-out where employer indicates that a certain number of remaining employees in employee's group will be terminated.

The IRS also clarified what circumstances are NOT an involuntary termination in its Q&As. These circumstances include:

  • Divorce;
  • Dependent child ceasing to be a dependent child under the terms of the plan;
  • Death of employee;
  • Absence from work due to illness or disability;
  • Reduction in hours that is not a reduction to zero hours (unless employee voluntary terminates employment as a result);
  • Strike or work stoppage initiated by employees and their representatives.

Other Notable Clarification from the IRS

  • Both the involuntary termination and the loss of health care coverage must occur during the period from September 1, 2008 through December 31, 2009;
  • An individual may qualify for the subsidy more than once and is eligible for a new period of up to 9 months each time (e.g. two job losses during the period September 1, 2008 through December 31, 2009);
  • The date of loss of coverage depends on the how the employer characterizes the loss of coverage (for example, if employer continues to pay healthcare premiums for 6 months as part of a severance agreement and treats the severance benefits as COBRA premiums the loss of coverage occurs at the beginning of severance; but if employer treats the severance benefits as a continuation of coverage and not as COBRA, then the loss of coverage occurs at the end of the severance period);
  • The subsidy is available for vision-only and dental-only plans as well as medical plans. Only a health flexible spending arrangement (FSA) is not eligible.
  • Plans may allow "ineligible individuals" such as domestic partners or grandchildren to be covered even though they do not meet the definition of a qualified beneficiary for purposes of COBRA (spouse of the opposite sex or dependent child). However, these ineligible individuals do not qualify as "assistance eligible individuals" (AEIs) entitled to the subsidy. Thus, the plan must determine the cost associated with the individuals that qualify as AEIs and the cost associated with individuals that do not qualify as AEI's separately.

Example: Employee X has one dependent child and a domestic partner. Employer charges the following COBRA premiums:

Family coverage $1,000 Self + 1 $800 Self only $450

Employee X has family coverage and is an AEI. Thus, the portion of the cost of coverage for Employee X and his eligible dependent is $800. The portion of the cost for his domestic partner is $200 ($1000-$800).

Employee X is eligible for the subsidy at 35% of $800 or ($280) plus the full cost of $200 for his domestic partner. Thus, Employee X will pay $480 for coverage instead of $1,000 for coverage for up to 9 months.

If Employee X had two eligible dependents, his premium cost for up to 9 months would be 35% of $1000 or $350 per month.

Notice 2009-27 can be found at

DOL Model Notices

On March 19, 2009, the DOL issued model notices to comply with ARRA. ARRA mandated two types of notices, a General Notice (which must be sent to all qualified beneficiaries who experienced a qualifying event between September 1, 2008 and December 31, 2009) and a Notice with Extended Election Periods (which must be sent to any AEI or individual who would have been an AEI had they elected COBRA between September 1, 2008 and February 16, 2009). However, instead of just two notices, the DOL prescribed four notices as follows:

Four Categories of Notices

1. General Notice (Full Version)

The General Notice (Full Version) is designed to take the place of the pre-ARRA COBRA Election Notice. Under ARRA, this notice must be provided to all qualified beneficiaries (not just those who were involuntarily terminated) who experienced a qualifying event between September 1, 2008 and December 31, 2009. The introductory parenthetical on this notice stating "(For use by group health plans for qualified beneficiaries who have not yet received an election notice and with qualifying events occurring during the period that begins with September 1, 2008 and ends with December 31, 2009) caused quite a stir after the notices were released. ARRA does not exclude from its general notice requirement those qualified beneficiaries who have already received an election notice.

On April 2, 2009, the DOL updated its "FAQs For Employers About COBRA Premium Reduction Under ARRA." Specifically, Q-14 provides:

Plans subject to the Federal COBRA provisions must send the full version of the General Notice to individuals meeting all of the following criteria:

  • Qualified beneficiaries (not just covered employees);
  • Who experienced a qualifying event at any time from September 1, 2008 through December 31, 2009 (regardless of the type of qualifying event); and
  • Who either:
  1. Have not yet been provided an election notice; or
  2. Who were provided an election notice on or after February 17, 2009 that did not include the additional information required by ARRA

At a recent web broadcast, DOL representatives expressed that the DOL would only look back to February 17, 2009 (the enactment date of ARRA) to see if the COBRA Election Notice included the subsidy information. According to the DOL representative, if a pre-ARRA compliant COBRA election notice was provided to a qualified beneficiary prior to ARRA's enactment, a new General Notice need not be sent to that qualified beneficiary. Note: if the qualified beneficiary is an AEI or would be an AEI had they elected COBRA between 9/1/08 - 2/16/09, the Notice in Connection with Extended Election Periods (see below) must be provided. On April 9, 2009, the DOL added the General Notice (Full Version) in Spanish to its webpage. The deadline for the General Notice is not affected by ARRA, and remains at 44 days after the COBRA qualifying event.

2. General Notice (Abbreviated Version)

This notice is the same as the General Notice (Full Version) except it does not include the COBRA election information. Question 16 in the DOL's FAQs provides:

The abbreviated version of the general notice, which includes the same information as the full version regarding the availability of the premium reduction and other rights under ARRA, but does not include the COBRA coverage election information, may be sent in lieu of the full version to individuals who meet all of the following criteria:

  • Have experienced a qualifying event on or after September 1, 2008;
  • Have already elected COBRA coverage; and
  • Currently have COBRA coverage.

There is not an ARRA statutory deadline for the General Notice (Abbreviated Version) but DOL representatives have expressed April 18, 2009 as a reasonable deadline for distributing this notice. The Abbreviated Notice is not mentioned in ARRA at all and some employers are instead providing the Full Version Notice to those currently on COBRA.

3. General Notice (Alternative Notice)

The Alternative Notice is for use by health insurance issuers that provide group health insurance coverage comparable to COBRA, such as coverage under so-called "mini-COBRA" laws applicable in various states. In some cases, the Alternative Notice will need to be modified to conform with state requirements. For example, some states are issuing regulations to provide for a special extended period for AEIs to elect continuation coverage.

4. Notice in Connection with Extended Election Periods

The Notice in Connection with Extended Election Periods is the other notice prescribed by ARRA. According to Question 18 of the DOL's FAQs -

Plans subject to the Federal COBRA provisions must send the Notice in Connection with Extended Election Periods to any AEI (or any individual who would be an AEI if a COBRA continuation election were in effect) who:

  • Had a qualifying event that was an involuntary termination of employment at any time from September 1, 2008 through February 16, 2009; and
  • Either did not elect COBRA continuation coverage, or elected but subsequently discontinued COBRA.

This notice must contain information regarding the second election opportunity and must be provided by April 18, 2009 under ARRA.

Other Forms

The DOL also issued two other forms: (1) Request for Treatment as AEI and (2) a Summary of the Cobra Premium Reduction Provisions under ARRA. The first form is created for an individual to claim that they are an AEI and eligible for the subsidy. The individual must answer a series of questions and return the form to the employer or COBRA administrator. This form also includes a section for the employer to approve or deny the subsidy. Presumably, the DOL and Department of Health and Human Services ("DHHS") (depending on whether the employer is in the private or public sector) will use this form when determining appeals.

The second form, the Summary of the ARRA premium, should be sent with each notice. Certain plan information must be inserted and employers should include the DOL website and phone number if they are a private sector employer and should include the DHHS website and phone number if they are a public sector employer.

The DOL's "FAQs For Employers About COBRA Premium Reduction Under ARRA" can be found at

Some Questions Still Unanswered … At Least Officially

Call to Active Military Duty?

An employee's leave of absence because of military duty results in a reduction in hours likely causing a loss of health insurance benefits under an employer's health plan. Thus, a COBRA "qualifying event" occurs and a COBRA notice must be provided to the employee and any dependents that had insurance coverage on the day before the qualifying event. However, under ARRA, the qualifying event must be an involuntary termination, not a reduction of hours, in order for eligibility for the premium subsidy to apply.

Notice 2009-27 does not address any circumstance regarding military leave. It does state, however, that an absence from work due to illness or disability is not an involuntary termination and a reduction in hours is generally not an involuntary termination unless an employee voluntarily resigns in response to an employer-imposed reduction in hours. While all this could lead to the conclusion that military leave is not an involuntary termination, IRS representatives have stated otherwise. At a recent web broadcast, they reversed an earlier statement and said that Treasury now believes that a military leave for active duty service, even though not employer-initiated, is an involuntary termination of employment for purposes of the ARRA subsidy.

Although this statement is unofficial, it provides insight into future guidance. Given this expressed view, it seems reasonable for an employer to provide the DOL Model Notice with Extended Election Periods to any employee who went on active military duty between September 1, 2008 and February 16, 2009. Further, employers should consider providing to anyone who was or is called to active duty on or after February 17, 2009 the DOL Model General Notice with the Request for Treatment as an AEI. Of course, anyone on active military duty who has already elected and still has COBRA (though likely to be few) may receive the DOL Model General Notice - Abbreviated Version.

What about Seasonal and Temporary Workers?

IRS representatives at the web broadcast expressed (unofficially) that seasonal workers and temporary workers may be eligible for the COBRA subsidy under ARRA. The representatives opined that if the seasonal or temporary workers were wiling to work and no work was available, then such circumstances could be considered an involuntary termination.

This scenario assumes that the seasonal and temporary workers would otherwise qualify as an AEI. In some cases, the seasonal and temporary workers may not be covered by an employer's health plan in the first place and thus would not be qualified beneficiaries nor an AEI despite how the termination of employment is categorized.

What about Gross Misconduct?

Notice 2009-27 states that if an employee is terminated due to gross misconduct, the termination is not a COBRA qualifying event and the employee and other family members are not eligible for continuation coverage. However, "gross misconduct" has been narrowly construed by the courts. At the web broadcast, IRS officials acknowledged the difficulty in defining gross misconduct and opined that an employer need not be overly concerned about penalties for taking a credit on their payroll tax return for providing a COBRA notice and subsidy to a person whose circumstances of termination fall within this murky area.

What if System Termination Codes are Not Correct?

Employers are subject to the same penalties for failing to provide ARRA-compliant COBRA notices that applied to pre-ARRA COBRA notices. Thus, if an employer or insurer is not certain that the qualifying event is coded accurately or whether the circumstances surrounding a termination would qualify as an involuntary termination, it is advisable to send notices to all qualified beneficiaries with a qualifying event between September 1, 2008 and December 31, 2009. As a DOL representative recently expressed, it is permissible to "cast the net wide" and send the Notice in Connection with Extended Election Periods to a broader group of individuals than to just those that may qualify as AEIs.


Although uncertainties remain, the key requirements for employers to comply with the COBRA subsidy are now in place. Of course, questions will continue to arise, and the IRS, DOL and the courts are likely to deal with these questions for some time to come. If you need assistance in complying with the COBRA requirements, contact any member of the Dinsmore & Shohl, LLP Compensation and Benefits Practice Group.

Under U.S. Treasury Regulations, we are required to inform you that any tax advice contained in this message or in any attachment is not intended to be relied upon, and cannot be relied upon, as substantial authority to avoid penalties under the Internal Revenue Code.