Publications & Media

As I am sure you all recall, as part of the American Recovery and Reinvestment Act (ARRA), Congress imposed new COBRA obligations on employers. Most notably, ARRA changed the payment structure for employees electing COBRA benefits, permitting involuntarily-terminated employees to pay only 35% of their COBRA premium (down from 102% as previously required). Employers were stuck with the remaining 65% of the premium; however, the 65% could be recovered from the government through a credit against the employer's payroll taxes. The premium reduction was scheduled to end in December 2009 and everything was to return to normal.

Not so fast, my friend. Recently, Congress signed into law the 2010 Defense Appropriations Act. Among other things, the Act extends the eligibility period for the COBRA employee premium reduction for an additional two (2) months (through February 28, 2010) and increases the maximum period an employee may receive a COBRA subsidy for an additional six (6) months (from 9 months previously to 15 months under the Act). Also, individuals who had reached the end of the reduced premium period before the extension will have additional time to pay for certain subsequent coverage periods at the reduced rate. In that case, for coverage periods that began prior to enactment of the Act, these individuals will need to pay 35 percent of applicable premium costs by the latter of February 17, 2010 (60 days after date of enactment, December 19, 2009) or 30 days after notice of the extension is provided by their plan administrator.

The implications of the extension of the COBRA premium reduction are that employers should be prepared for former employees to continue utilizing the COBRA benefit paying only 35% of the premium cost, while the company will still provide the remaining 65% for up to an additional six (6) months per employee (an increase from the previous 9 month to the new 15 month limit).

Furthermore, employers should be sure to keep track of the payments made as part of COBRA so that those are accurately recorded on the Form 941. Furthermore, under the new regulations, an employee who is involuntarily terminated on or before the end of February 2010, will be eligible for COBRA at the reduced premium for a 15-month period. Therefore, employers should continue to keep records of all expenditures made relating to COBRA as the credits will extend all the way until 2011.