The American Recovery and Reinvestment Act Amends Coverage for Provisions of COBRA

Employment Law Update

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (“the Act”), attempting to provide economic stimulus to the nation’s economy.  Among the provisions of the Act are important changes to the continuation coverage of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”).  The Act Revises COBRA to alleviate nearly two-thirds of the cost to employees form continuing their medical benefits following an involuntary termination for eligible tax payers earning below a maximum threshold.  For eligible individuals, the Act provides for 65 percent subsidy of the required COBRA premium for a maximum period of nine months.  Eligible employees will only be required to pay 35 percent of the COBRA premium that he or she would otherwise be required to pay for employee and family coverage.  This new COBRA benefit under the Act applies to persons who became eligible for COBRA between September 1, 2008 and December 31, 2009, due to an employee’s involuntary termination of employment.  The act requires employers to change some COBRA notices and practices, and also affects payroll tax obligations.