Thursday, February 19, 2009

Stimulus Impacts COBRA

The American Recovery and Reinvestment Act signed by President Obama in Denver on Tuesday helps workers with COBRA benefits, as explained in Kim Ryan's 9News interview by Gregg Moss yesterday.

A key component of the stimulus package includes helping the unemployed maintain their health insurance through COBRA.

COBRA generally allows a person to retain health insurance in a previous employer's health plan for up to 18 months by paying the entire cost of that coverage, plus an additional 2% administration fee. Those premiums can be steep and have prevented many displaced workers from continuing their health coverage.

The stimulus provides a 65 percent subsidy for the COBRA premiums for up to 9 months, or until a worker is offered a plan by a new employer. The subsidy kicks in as a tax credit to the former employer offering the insurance coverage. Eligible workers include those involuntarily terminated from their jobs between Sept. 1, 2008 and Dec. 31, 2009. Eligibility depends on how much the worker earned on the job, so some higher paid employees will not be eligible for this subsidy. For eligible workers who did not elect COBRA, the law allows them 60 days to sign up for extension of COBRA coverage.

The payments are not retroactive, so workers who have already made COBRA payments will not receive reimbursement. The subsidies or tax credits start immediately.

Workers who lose their jobs between the time the bill becomes law and 2010 will be eligible for the subsidy as long as they have not exhausted the 9-months of subsidy coverage. COBRA applies to companies with 20 or more employees. The Joint Committee on Taxation estimates that 7 million people will keep their health insurance under this provision.

To see the text of the law, go to: /

For more information on employment law, see

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  1. Anonymous10:48 AM

    You indicate the tax credit is to the former EMPLOYER - shouldn't that be EMPLOYEE?

  2. You are very perceptive, but the law actually provides the tax credit to the EMPLOYER. It seems backwards, but the way the law works is that the ARRA treats assistance eligible individuals who pay 35 percent of their COBRA premium as having paid the full amount. The premium reduction (65 percent of the full premium) is reimbursable to the employer, insurer or health plan as a credit against certain employment taxes. If the credit amount is greater than the taxes due, the Secretary of the Treasury will directly reimburse the employer, insurer or plan for the excess. See the Department of Labor's Fact Sheet at: Thanks for your comment!!