President Signs Extension of COBRA 65% Subsidy

President Barack Obama signed into law on Wednesday the Temporary Extension Act of 2010 (HR 4691), hours after the Senate passed it by a 78–19 vote. The main purpose of the bill is to extend unemployment benefits and health care subsidies for the unemployed, but it also extends through March 31, 2010, a federal tax credit that allows the federal government to subsidize 65% of the cost of COBRA premiums. The law also clarified the treatment of COBRA continuation that results from reductions in hours followed by termination of employment.

The COBRA subsidy was first enacted as part of the American Recovery and Reinvestment Act of 2009, PL 111-5. Under the provision, as long as an eligible individual pays 35% of the premium for COBRA continuation coverage, the group health plan must treat the individual as having paid the full premium. Eligible individuals can receive this subsidy for up to 15 months. Employers are reimbursed for the 65% subsidy by taking a credit on their payroll tax returns.

To be eligible, individuals must have been involuntarily terminated from their employment after Aug. 31, 2008, and before April 1, 2010. The Temporary Extension Act extended the end of the eligible period from Feb. 28, 2010, to March 31, 2010.

The act also added special rules for individuals who lost their health coverage because of a reduction in working hours. Under the act, if an individual did not make a COBRA continuation coverage election when his or her hours were reduced (or made an election but then discontinued COBRA coverage), if the individual is then involuntarily terminated from employment, that will be treated as a qualifying event for COBRA continuation coverage purposes.