Labor and Employment Law: Current Developments

One of the provisions of the stimulus bill known as the American Reinvestment and Recovery Act of 2009 is the COBRA subsidy. The statute provides a federal subsidy for COBRA premium for employees involuntarily terminated from their employment, The new law was signed on February 1, 2009. It became effective for most employers with 20 or more employees on March 1, 2009. (Employees in states with Mini-COBRA statutes covering employers with fewer than 20 employees may also be eligible for the subsidy.)

The new law has three major components:

1. The federal government will pay 65% of the COBRA premium for eligible individuals who were involuntarily terminated between September 1, 2008 and December 31, 2009. 

2. Persons who were terminated after September 1, 2008 but who did not elect COBRA coverage or elected it and then dropped it (perhaps for financial reasons) now will have an opportunity to elect COBRA and pay only 35% of the premium. 

3. Employers have the option to offer coverage other than that which the employee had immediately prior to termination.  (This is contrary to the longstanding COBRA provisiions which give the employee the right only to continue what the employee already has.)

The subsidy is available to “assistance eligible individuals” (“Eligible Individual”). The subsidy is available to any “Assistance Eligible Individual” (“Eligible Individual”). An Individual is eligible if:

1. S/he Is a “qualified beneficiary” (an employee, spouse, or dependent);

2. The qualifying event was the “involuntary termination of employment” between September 1, 2008 and December 31, 2009;

3. The Individual is eligible for COBRA continuation coverage (or comparable State Mini-COBRA coverage) at any time during that 16 month period; and

4. The Individual elects the COBRA coverage.