On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act ("the Act"), in an attempt 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 from continuing their medical benefits following an involuntary termination for eligible taxpayers earning below a maximum threshold. For eligible individuals, the Act provides for a 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.
Attorney Leila Narvid in Payne & Fears LLP's San Francisco Office gives the following advice to employers with regard to new obligations arising under the Act:
The COBRA subsidy will have a substantial impact on almost all employers. Employers have little time to implement the new administrative procedures and meet the new notice requirements. Despite the time pressure, employers should take the time to work with HR, payroll, finance, and third-party providers to ensure understanding of the new provisions. Employers should expect a higher level of use of COBRA than there has been in the past, and should be prepared for that development. Employers should also take careful consideration of the new rules when planning any workplace reductions.