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Old COBRA Subsidy Could Shape New One

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What You Need to Know

  • The 2009 COBRA subsidy law may explain new law.
  • The old version paid just 65% of the employee's premiums.
  • Another difference is the interaction of COBRA coverage now with the Affordable Care Act system.

Workers and employers are asking how the temporary COBRA benefits continuation subsidy in the new American Rescue Plan package might really work.

Members of the House voted 220-211 Wednesday for final passage of a motion to concur in a Senate amendment to H.R. 1319, the American Rescue Plan Act bill.

President Joe Biden said in a statement that he expects to sign the ARP bill Friday in the White House.

Most analysts have focused on other parts of the bill, such as provisions relating to $1,400 stimulus payments that many Americans are supposed to get.

The main congressional summaries of the act state that the ARP COBRA subsidy provision in the act will create a federal tax credit that can help workers who lose their jobs. Employers can use the tax credit to reduce the cost for a worker continuing health coverage to zero for the period from April 1 through Sept. 30.

Finding a summary that explains the provision in more detail is difficult.

Possible Help From the Past

One clue may be how regulators interpreted the COBRA tax credit subsidy provision in the American Recovery and Reinvestment Act of 2009.

The ARRA COBRA tax credit subsidy, along with a later subsidy extension, helped pay 85% of eligible workers’ COBRA health benefits continuation premiums for the period running from Sept. 1, 2008, through May 31, 2010.

Congress based that COBRA premium subsidy on an older, narrowly targeted subsidy that helped workers hurt by the effects of international trade agreements pay for their health coverage.

The ARP and ARRA COBRA provisions differ in some ways.

The ARRA version, for example, includes language about people with pre-existing conditions that the ARP version lacks.

Employers and workers using the new ARP subsidy will need to consider how the subsidy affects the workers’ eligibility for the Affordable Care Act health insurance premium tax credit, which did not exist when the ARRA-era subsidy was in effect.

But much of the language in the ARRA and ARP versions appears to be nearly identical. The result may be that, in some cases, the IRS and the U.S. Department of Labor may produce ARP COBRA rule interpretations that resemble the ARRA COBRA rule interpretations.

Consultants hired to evaluate the ARRA COBRA subsidy found that the subsidy may have increased the percentage of workers eligible for COBRA who took up COBRA benefits to 34%.

The consultants weren’t sure what the COBRA take-up rate was before COBRA came along, but they said the rate could be as low as 8%.

Documents

Financial professionals and others who want to see how the IRS handled the ARRA COBRA subsidy provision can find a library of ARRA COBRA subsidy resources here.

The site lists, for example, IR-2009-15, a notice that explains how employers were supposed to claim the COBRA Medical Coverage Credit on the payroll tax form.

Another document gives answers to frequently asked questions about how employers were supposed to administer the ARRA version of the subsidy.

(Image: LeventKonuk/Shutterstock)