Guidance on Implementing COBRA Premium Subsidy Released

Notice 2009-27, 2009-16 I.R.B. __: IRS releases guidance in question-and-answer format regarding premium assistance for COBRA continuation coverage.

Discussion: The American Recovery and Reinvestment Act of 2009 (ARRA), P.L. 111-5, §3001, provided temporary premium assistance to certain individuals eligible for continued health care coverage under §4980B (COBRA) or under state law. This assistance, which subsidizes 65% of the cost of continuation coverage, is available to individuals affected by an involuntary termination between September 1, 2008, and December 31, 2009. In Notice 2009-27, the IRS provided guidance on how to implement the COBRA premium subsidy.

The notice clarified what constitutes an involuntary termination. Specifically, the IRS indicated that involuntary termination may include the employer's failure to renew an employee's contract; a constructive termination wherein the employee voluntarily terminates for good reason due to a material negative change in the employment relationship or geographic relocation; an involuntary reduction to zero hours, lay-off, furlough, or other suspension of employment; retirement where the employer would have terminated the employee absent retirement; and a buy-out where the employer indicates that a certain number of remaining employees will be terminated after the offer period expires. A reduction in hours that is not a reduction to zero is not an involuntary termination, the IRS further indicated.

The notice also clarified who qualifies as an assistance eligible individual. Both the involuntary termination, and the subsequent loss of coverage, must occur during the period that begins September 1, 2008, and ends December 31, 2009, the IRS provided. Thus, if an individual experiences a loss of coverage after December 31, 2009, the individual is not eligible for assistance, even though the involuntary termination occurred prior to December 31, 2009. In addition, the IRS indicated that if an involuntary termination occurs after another qualifying event triggers a loss of coverage, such as a divorce or reduction in hours, then the involuntary termination does not cause the affected individual to be an assistance eligible individual.

The IRS provided that a plan may not refuse to provide the premium subsidy on the grounds that an individual will exceed the income limit under the ARRA. The plan must provide the premium subsidy, the IRS indicated, unless the individual submits a signed and dated notification of permanent waiver to the person who is reimbursed for the premium subsidy under §6432. The IRS further indicated that the waiver may not be revoked, and the individual who elects a waiver may not receive the premium subsidy in 2009 or 2010, regardless of his or her income in those years.

The notice indicated that coverage eligible for premium reduction may include vision-only and dental only plans, retiree health coverage, and health reimbursement arrangements. The notice also provided guidance and examples on calculating the premium reduction, determining the beginning and end of the premium reduction period, and the extended election period. Other topics covered by the guidance include payments to insurers under federal COBRA and comparable state continuation coverage.

Notice 2009-27 is scheduled to appear in I.R.B. 2009-16, dated April 20, 2009.