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COBRA subsidy background and FAQ

The American Recovery and Reinvestment Act (ARRA) created a temporary subsidy for certain individuals with either federal COBRA or state continuation coverage that is comparable to COBRA. This law took effect February 17, 2009. The Departments of Labor (DOL), Treasury, and Health and Human Services developed rules and guidelines for implementation.

The FAQs below reflect the COBRA and state continuation coverage subsidy requirements. The answers may change if federal agencies issue further guidelines. These FAQs provide information only. Kaiser Permanente does not provide legal or tax advice.

Employer groups should continue to send the entire COBRA premium to Kaiser Permanante to maintain coverage for their federal COBRA members.

Employer groups that have questions regarding their own responsibilities under this new law, including notification requirements, should contact their legal counsel or the Department of Labor .

What is the COBRA/state continuation coverage premium subsidy?

The ARRA created a temporary premium subsidy for certain individuals (referred to as "assistance eligible individuals" or AEIs) with COBRA or comparable state continuation coverage. The federal government will subsidize 65 percent of the portion of the COBRA or state continuation coverage premiums that these AEIs pay. Among other requirements, the qualifying event that made the AEI eligible for COBRA or state continuation coverage must be the "involuntary termination" of the covered employee's employment that occurred some time between September 1, 2008, and December 31, 2009. AEIs also must be COBRA "qualified beneficiaries," so domestic partners cannot be AEIs.

What is considered "involuntary termination?"

According to the IRS Notice 2009-27, the following are examples of "involuntary termination" of employment (see the IRS Notice for more information and examples):

• Employee is fired (but note that if the termination is for gross misconduct, the termination is not a qualifying event, and the employee and any covered dependents are not eligible for COBRA).
• Employee is laid off.
• Employee placed on furlough (reduction to zero hours).
• Employee resigns, but the employee knows that the employer will terminate employment if the employee does not resign.
• Employee resigns because employer requires a material change in the geographic location of employment.
• Employee quits due to an employer-imposed reduction in work hours that is a material negative change in the employment relationship for the employee.
• Employee's employment contract was not renewed by employer at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services.
• Employee is terminated for absence from work due to illness or disability.
• Employee is terminated for cause (but note that if the termination is for gross misconduct, the termination is not a qualifying event, and the employee and any covered dependents are not eligible for COBRA).

The following are not considered "involuntary termination" of employment:

• Employee voluntarily quits job
• Employee retires (except that it is an involuntary termination if, absent retirement, the employer would have terminated the employee's services, and the employee had knowledge that the employee would be terminated)
• Employee is absent from work due to illness or disability
• Death
• Divorce
• Dependent is overage (reached limiting age)

When does the subsidy go into effect?

This subsidy is effective no earlier than March 1, 2009, for plans with monthly premiums.

How long will the subsidy last?

For AEIs, the subsidy will continue until the first of the following occurs:

1. Nine months pass since the subsidy began.
2. The maximum period of continuation coverage required under COBRA or comparable state continuation coverage expires.
3. The AEI becomes eligible for coverage under another group health plan (with limited exceptions) or Medicare.

Can the subsidy be used for dental and vision continuation coverage?

For AEIs, the subsidy will apply to continuation coverage under COBRA or comparable state continuation coverage, including any vision or dental benefits it includes.

Can the subsidy be used for chiropractic, acupuncture, or other supplemental services?

For AEIs, the subsidy will apply to continuation coverage under COBRA or comparable state continuation coverage, including any complementary or alternative treatments it includes.

Who determines eligibility for the subsidy?

For federal COBRA, the employer is responsible for determining eligibility. For comparable state continuation coverage, Kaiser Permanente will determine eligibility based on documentation submitted by the former employer.

Do domestic partners or same-sex spouses qualify for this subsidy?

No. Domestic partners cannot be AEIs because they are not federal COBRA-qualified beneficiaries, and same-sex spouses cannot be AEIs because of the federal Defense of Marriage Act.

Do individuals who are eligible for other group health coverage qualify for the subsidy?

No. Individuals who are eligible for coverage under another group health plan (with limited exceptions) or under Medicare do not qualify for the subsidy.

How is Kaiser Permanente implementing the subsidy for its employer groups?

The subsidy is handled in two ways:

1. Employer groups that bill and collect COBRA premiums from members, either directly or through a third-party administrator (TPA).
2. Employer groups that are not subject to COBRA but are subject to comparable state continuation coverage.

How will the subsidy be handled for groups that bill and collect COBRA premiums from members, either directly or through a third-party administrator (TPA)?

For these groups, the employer (or the group health plan in the case of an ERISA multi-employer plan) advances the subsidy, pays Kaiser Permanente the entire COBRA premium, and gets reimbursed for the subsidy through a payroll tax credit.

How will the subsidy be handled for groups that are not subject to COBRA but are subject to comparable state continuation coverage?

Employers subject to state continuation requirements should collect 35 percent of the required premium from the individual and submit that amount to Kaiser Permanente. Kaiser Permanente will pay the 65 percent subsidy and receive reimbursement from the federal government through a payroll tax credit.

Where can employer groups or administrators get model notices to inform people about the new election periods?

The model notices are available on the Department of Labor Web site.

How does the subsidy work for groups that charge an administration fee for COBRA or state continuation coverage?

The subsidy applies to the total amount of the COBRA or state continuation coverage premium that the employer charges the AEI. The total premium amount includes any additional administration fee that the employer charges to the individual.

For more information, please visit the Department of Labor Web site.

• Employer group letter for state continuation coverage
• COBRA subsidy Q&A
• Alternative notice sample