COBRA and Layoffs: What This Means to Your Business

New laws have changed the COBRA rules with respect to federal subsidies for certain workers. Understand your employer obligations under the new laws if you have layoffs.

COBRA in general
Federal COBRA requires employers with 20 or more workers in the prior year that maintain health plans to offer continuation coverage for those who leave the job, voluntarily or involuntarily. Many states have their own “mini” COBRA laws covering companies with as few as two employees.

The American Recovery and Reinvestment Act of 2009 originally provided that workers involuntarily terminated on or after September 1, 2008, and before January 1, 2010, would have 65% of their COBRA premiums paid by the federal government for up to nine months. The Department of Defense Appropriations Act, 2010, extended eligibility to those terminated before March 1, 2010, with the subsidy running for 15 months. The federal subsidy reduces the average monthly cost of COBRA coverage for a terminated employee with a family policy from a national average of $1,111 to $389.

Employers don’t pay for the subsidy; the federal government does. However, as a practical matter, employers lay out the premiums and recoup them through a reduction in employment taxes paid to the federal government.

Temporary Extension Act of 2010
A new law signed on March 2, 2010, extends the eligibility date from February 28, 2010, to March 31, 2010 (i.e., those laid off in March are eligible for the federal subsidy). Eligibility includes those who experienced a reduction in hours of employment anytime on or after September 1, 2008, followed by an involuntary termination between March 2, 2010, and March 31, 2010. Anyone who experienced the reduction in hours during this period but failed to elect COBRA and is terminated within this window in March can now make a COBRA election.

Alert: A jobs bill moving through Congress now would extend eligibility for the subsidy through the end of 2010. If the bill does not become law before the end of March, expect to see another temporary extension of the COBRA subsidy.

Employer action
Be sure to revise notices that must be given to terminated employees about the federal subsidy. Find a sample notice from the Department of Labor.

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