It has been two weeks since the President signed The American Recovery and Reinvestment Act of 2009 ("ARRA"). The Department of Labor ("DOL") and Internal Revenue Service ("IRS") have each dedicated pages on their respective websites to provide information about the COBRA subsidy… but what information can we glean from their pronouncements so far?


The ARRA amended the health care continuation coverage 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 or are involuntarily terminated between September 1, 2008 and December 31, 2009. The ARRA also provides that any such assistance eligible individual ("AEI") who did not elect continuation coverage or who dropped continuation coverage may re-elect continuation coverage. An AEI is a qualified beneficiary (employee or dependent but not a domestic partner) who is (1) eligible for COBRA continuation coverage, (2) elects continuation coverage, and (3) is or was involuntarily terminated between September 1, 2008 and December 31, 2009.

The subsidy applies to most health plans beginning March 1, 2009. The ARRA provides, however, that for the first two months (March and April 2009), if an AEI pays the full COBRA premium, the employer, multi-employer plan or insurer (whichever is applicable) has a choice to either (1) reimburse the AEI for the amount paid in excess of the subsidy (35% for the AEI) or (2) provide a credit for subsequent COBRA premiums equal to the excess paid.

Department of Labor

The DOL's website contains a Fact Sheet and Frequently Asked Questions (" FAQs") about the COBRA Subsidy in addition to a flyer designed for employers/employees and a job loss poster. This information can be found at

Posters and Flyers

While an employer may use the flyer and poster, there is nothing in the ARRA that requires an employer to post a flyer or job loss poster. The ARRA requires the Secretary of Labor, in consultation with the Secretary of Treasury and Secretary of Health and Human Services, to provide outreach consisting of public education and enrollment assistance relating to the COBRA subsidy. These publications were most likely developed by the DOL to meet their outreach obligations under the ARRA.

Small Employers

In its Fact Sheet, the DOL reiterates that COBRA generally does not apply to health plans sponsored by small employers, i.e., those with less than 20 employees. However, the ARRA provides that the COBRA subsidy applies to "a State program that provides comparable continuation coverage." There has been considerable discussion among practitioners and employers regarding the application of the subsidy to plans that are subject to state continuation coverage laws. The DOL guidance does not shed much light on this area. According to the Fact Sheet, the DOL believes that the subsidy is available for AEIs who are participants in plans subject to state continuation coverage laws, but also states that the 60 day special election period opportunity for those AEIs who terminated coverage between September 1, 2008 and February 16, 2009 does not apply to coverage sponsored by small employers with less than 20 employees who are subject to state law. In its FAQs, the DOL states that it is up to the individual states to determine whether the special election period for the COBRA subsidy will apply.

Small employers, plan administrators and insurers will need further guidance from the Department of Treasury and state legislatures regarding their obligations for providing the subsidy.


The ARRA requires employers and plan administrators to provide notices regarding the subsidy to all employees who incur a qualifying event between September 1, 2008 and December 31, 2009. The ARRA further provides that the DOL must issue model notices no later than March 19, 2009.

Both in its Fact Sheet and in its FAQs, the DOL provides that plan administrators must provide notices separately or along with notices they provide following a COBRA qualifying event to individuals who have a qualifying event between September 1, 2008 and December 31, 2009. AEIs who are eligible for the 60 day special election period must also receive a special election notice. The DOL provides that the notices should include any forms necessary for enrollment. However, the DOL has not yet issued model notices.

Expedited Review of Subsidy Denials

Appeals related to subsidy denials by private sector employer plans must be submitted on a DOL application form and either completed online or mailed or faxed to the DOL. The DOL states that the form will be available on its website soon.

The DOL states that the Department of Health and Human Services will handle appeals for federal, state, and local government employees as well as appeals related to group plans subject to state continuation coverage laws.

Department of Treasury (IRS)

News Release 2009-15 and Q&As

The IRS issued a News Release and its own Questions and Answers (Q&As) in response to the ARRA. The IRS also issued a revised Form 941 - Employer's Quarterly Federal Tax Return, which is where employers who are entitled to reimbursement for the subsidy take the credit to reduce their employment tax liability.

Small Employers

Like the DOL, the IRS provides that the new COBRA subsidy provisions apply to insurers required to offer continuation coverage under state laws similar to the federal COBRA. No further guidance is provided.

Form 941 Reporting & Recordkeeping

The revised Form 941 must be used for the quarterly return due on April 30, 2009. The Form 941 has been revised and the credit for the COBRA subsidy payment is claimed on Line 12a. The number of AEIs provided with the subsidy must be reported on Line 12b.

The IRS states that no additional information related to the COBRA subsidy must be submitted with the Form 941. However, the IRS provides a list of supporting documentation that must be maintained for those entities (employers, multi-employer plans or insurers) claiming the credit. This documentation includes the following (note: this may not be an exhaustive list):

  • Information on the receipt, including dates and amounts, of the AEI's 35% share of the premium;
  • In the case of an insured plan, copy of the invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA;
  • In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the AEIs;
  • Attestation of involuntary termination, including the date of the involuntary termination (which must be during the period 9/1/08 - 12/31/09), for each covered employee whose involuntary termination is the basis of the eligibility for the subsidy;
  • Proof of each AEI's eligibility for COBRA coverage at any time during the period from 9/1/08-12/31/09, and election of COBRA coverage;
  • A record of the SSNs of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for 1 individual or 2 or more individuals;
  • Other documents necessary to verify the correct amount of the reimbursement.

The IRS clarifies that if the reimbursement claimed is larger than the payroll tax owed with the Form 941, then the excess can be applied to the next quarterly return or may be issued as a refund, if requested.

News Release 2009-15 can be obtained at,,id=204709,00.html and the Q&As can be obtained at,,id=204708,00.html Form 941 and instructions can be obtained at and

What guidance are employers and plan administrators still waiting for?

  • Employers and plan administrators could use more guidance regarding (1) the definition of "involuntary termination" especially as it may relate to severance agreements; (2) the contents of notices, whether general or specific to the special election period for AEIs terminated prior to February 17, 2009; and (3) the documents required for recordkeeping to substantiate the payroll tax credits stemming from the subsidy.
  • Small employers and insurers subject to state law continuation coverage comparable to COBRA continuation coverage are still waiting for guidance with respect to meeting their obligations under the ARRA.
  • What should employers and plan administrators do now?
  • Make a record of all individuals (employees and dependents) who have had a qualifying event from September 1, 2008 - February 16, 2009. In this report, employers should document whether COBRA continuation coverage was elected and the reason for the qualifying event. AEIs in this group will be eligible for the special election period and must receive a notice regarding the subsidy and special election by April 18, 2009.
  • Make a record of all individuals (employees and dependents) who have a qualifying event beginning on February 17, 2009 - forward. This report should contain the same information as above. These AEIs must receive a notice regarding the subsidy within the normal timeframes applicable to COBRA (14 days after a qualifying event for a plan administrator and 44 days if the plan administrator and employer are the same entity).
  • We recommend waiting for the DOL to issue its model notices before updating your current COBRA notice to reflect the subsidy. The DOL must issue its model notices by March 19, 2009.
  • Decide whether a voluntary special enrollment for coverage in a different plan with a lower premium will be permitted. If so, the AEI will have 90 days from the date of notice of the plan enrollment option to elect coverage.
  • Determine COBRA rates with the subsidy.
  • Contact internal payroll departments and outside vendors so that systems are updated to reflect who is an AEI and the subsidized premium amount.
  • Review severance agreements and any employer subsidized COBRA premiums to determine applicability of the subsidy and reimbursement to the employer.