The COBRA subsidy program was scheduled to expire on Dec. 31, 2009. But a late reprieve from the government keeps the program up-and-running awhile longer. The extensions were tacked onto a defense appropriations bill — the Defense Appropriations Act of 2010 — which was signed on Dec. 19, 2009.
Under COBRA (short for the Consolidated Omnibus Budget Reconciliation Act of 1985), an employee who is terminated from work by an employer with 20 or more employees may elect to continue employer-provided health insurance coverage for up to 18 months. But the employee generally has to pay the full cost of the premiums to the employer plus a 2% administrative fee.
At least the 2009 economic stimulus law provided some measure of relief: a 65% discount for workers “involuntarily terminated” from the job between Sept. 1, 2008 and Dec. 31, 2009, for up to nine months. The employer must pay the balance, but it can recoup the cost through special payroll tax adjustments
This COBRA discount program phases out for high-income taxpayers. Single filers with an AGI exceeding $125,000 and joint filers with an AGI exceeding $250,000 must repay part of the amount as an additional tax. The phase-out is complete at $145,000 of AGI for single filers and $290,000 for joint filers.
The new defense appropriations law includes four key changes for involuntarily terminated employees who qualify for assistance.
1. The eligibility period for COBRA assistance is extended by two months. Previously, it applied to involuntary terminations between Sept. 1, 2008, and Dec. 31, 2009. Now it stretches our through Feb. 28, 2010.
2. The length of time an ex-employee can benefit from the subsidy is expanded to 15 months. So some workers can continue paying reduced COBRA premiums into 2011.
3. Employers must provide credit against future payments to qualified employees who paid the full premium in December 2009. Individuals should contact their plan administrator or employer sponsoring the plan.
4. Employers are required to inform laid off workers about the latest changes in the COBRA subsidy program.
We are glad to provide additional guidance relating to the COBRA subsidies. Both employees and employers may contact our office for more information. Congress may yet extend the COBRA subsidy program again. To stay on top of the latest developments, we encourage you to call our office.