Congress Approves Stimulus With COBRA Subsidy

On February 13, the Congress passed the American Recovery and Reinvestment Act of 2009 (the “Act”).  The Act includes tax breaks for businesses and individuals. The Act is now cleared for the President’s signature.

The Act contains a 65% federal subsidy for COBRA premiums for up to 9 months for involuntarily terminated workers and for their families. This subsidy also applies to state health care continuation coverage if required by states for small employers.

To qualify for this premium subsidy, a worker must be involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009. This subsidy terminates upon offer of any new employer-sponsored health care coverage or upon Medicare eligibility.

This subsidy is also available to workers who were involuntarily terminated between September 1, 2008 and enactment, but failed to initially elect COBRA coverage because it was unaffordable. These workers must be given an additional 60 days to elect COBRA coverage and receive the subsidy. An employers will be required to locate employees laid off since September 1, 2008, who declined COBRA coverage to tell them they have a new right to opt for coverage with the federal government picking up 65% of the premium.

The subsidy is not available to individuals with an annual income exceeding $125,000 or to couples with annual incomes exceeding $250,000. The subsidy is not taxable to the individuals.