IRS Issues New COBRA Guidance for Employers

Update Dec. 16: House Passes COBRA Subsidy Extension and Expansion

The IRS has issued guidance on the COBRA premium assistance or subsidy provisions of the economic stimulus bill recently passed in Congress. Under the provisions, eligible employees who were involuntarily terminated from their jobs between September 1, 2008, and December 31, 2009, and their qualified beneficiaries are entitled to up to nine months of COBRA health insurance coverage at a 65% reduction over what they would normally pay. The 27-page guidance (IRS Notice 2009-27) was issued late on March 31.

Among other things, the notice includes 58 specific questions and answers, plus examples, on these topics: involuntary termination, assistance-eligible individual, calculation of premium reduction, coverage eligible for premium reduction, beginning and end of premium reduction period, recapture of premium assistance, extended election period, payments to insurers under federal COBRA, and comparable state continuation coverage.

The section on involuntary termination, for example, indicates that some employee-initiated terminations can be involuntary if for good reason and “due to employer action that causes a material negative change in the employment relationship for the employee.” It also states that a layoff with right of recall that ends health care coverage is an involuntary termination and that retirement may be an involuntary termination if, absent retirement, the employer would have terminated the worker’s employment.

Regarding assistance-eligible individuals, the notice spells out what happens when employment ends before September 1, 2008, but health coverage ends after that date (no assistance eligibility), what happens under certain severance-pay arrangements involving continuation of health coverage, and other potentially common situations.

The section on calculating the COBRA subsidy offers 11 examples in addition to the questions and answers. The IRS also says it may issue additional guidance in the future if needed.
Learn the steps you must take NOW to comply with the COBRA changes by listening to the all-new audio conference “Effective Immediately: How the Stimulus Package Changes COBRA.” You also can find information on the changes to COBRA in the free HR Hero white paper “What the Obama Stimulus Plan Means for Employers: COBRA, Benefits, and More.”