The document provides additional questions and answers from the IRS regarding the COBRA premium assistance provisions. Key points covered include: 1) employers have flexibility in determining if a termination was involuntary; 2) seasonal and temporary workers whose contracts expire can be considered involuntary terminations; 3) reserve and National Guard duty is an involuntary termination regardless of leave status; and 4) individuals have flexibility in choosing the effective date of their COBRA coverage within limits of the subsidy period.

1. BENEFITS UPDATE
WEEK OF JUNE 1, 2009
Even More Q&As About the New COBRA Law
As reported earlier:
• Employees involuntarily terminated between September 1, 2008 and December 31, 2009 and
their family members will only have to pay 35% of the premium amount (rather than the usual
102%) for up to 9 months to continue group health coverage.
• Employers pay 65% of the premium, then take a payroll tax credit for that amount.
• If the premium assistance is provided to high income individuals, then their income tax will be
increased by the amount of the subsidy.
• Individuals who did not elect COBRA when eligible have 60 days after notice is provided to elect
coverage on a “go-forward” basis.
• The employer must offer the same health coverage the individual had at the time of the qualifying
event in accordance with COBRA, but may also offer other less expensive health coverage
options.
• Updated COBRA election notices must have been provided by April 18, 2009. The DOL issued
model notices.
The IRS issued additional questions and answers on its website. Here are some highlights:
Involuntary Termination
Challenges. If an employer’s determination that an employee’s termination of employment was
involuntary is consistent with a reasonable interpretation of the applicable statutory provisions and IRS
guidance, the IRS will not challenge that determination for purposes of whether the employer is entitled to
claim a payroll tax credit for the COBRA premium subsidy provided to the employee.
Involuntary Termination for Employees Working for a Limited Period. In the case of an employee who is
hired only for a limited period such as a seasonal worker or a teacher hired only for one school year, the
end of employment at the end of the period can be considered an involuntary termination. An involuntary
termination may include the employer’s failure to renew a contract at the time the contract expires, if the
employee was willing and able to execute a new contract providing terms and conditions similar to those
in the expiring contract and to continue providing the services. Thus, if an employee hired for a limited
period works to the end of the period, is willing and able to continue employment, and terminates
employment because of the failure of the employer to offer additional work, an involuntary termination
occurs for purposes of the premium subsidy.
Involuntary Termination for Reserve and National Guard Duty. An involuntary termination of employment
occurs if a member of a military Reserve unit or the National Guard who is employed by a civilian
employer is called to active duty. This is the case regardless of whether the civilian employer otherwise
treats the employee’s absence as a termination of employment or a leave of absence.
Delayed Effective Date for Coverage
An individual who is eligible for the special enrollment period must be offered COBRA coverage effective
the first period of coverage beginning on or after February 17. 2009. However, the employer may also
allow the individual to elect COBRA coverage to be effective as of a later date.
This Benefits Update is intended to convey general information and may not take into account all the
circumstances relevant to a particular person’s situation.
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2. In that case, however, for purposes of the 9-month limit on eligibility for the premium subsidy, the 9-month
period would begin with the first period of coverage beginning on or after February 17, 2009.
In addition, under ARRA, the period starting with the involuntary termination and ending with the first day
of the first period of coverage beginning on or after February 17, 2009 is disregarded in determining
whether a break in coverage has occurred for purposes of limiting preexisting condition exclusions under
subsequent group health plan coverage. However, if an individual elects COBRA coverage to be effective
as of a later date, the period between the first day of the first period of coverage beginning on or after
February 17, 2009 and the date when COBRA coverage is effective is not disregarded for purposes of the
rules limiting preexisting condition exclusions.
If state continuation (mini-COBRA) law is amended to provide a special election period similar to the
extended COBRA election period, such state law can require coverage offered during such a period to be
effective with the first period of coverage beginning on or after February 17, 2009 or allow it to be
effective as of a later date. However, for an individual who elects coverage to be effective as of a later
date, the 9-month limit on eligibility for the premium subsidy would begin with the first period of coverage
beginning on or after February 17, 2009. In addition, depending on state law, the delay in the beginning of
COBRA coverage could affect the application of preexisting condition limitations.
COBRA Premiums Paid by HRAs
COBRA premiums paid on a pre-tax basis from a health reimbursement arrangement (“HRA”) are treated
as paid by the employer and are not taken into account in determining whether an individual has paid his
or her 35 percent share of the COBRA premiums. Therefore, the individual is not treated as paying the 35
percent and the subsidy does not apply.
Reporting
No information reporting of the COBRA premium subsidy is required to be provided to an assistance
eligible individual or to the IRS; employers are not required to report the COBRA premium subsidy on the
former employee’s Form W-2 or Form 1099. However, employers must keep records of the individual
payments and other documentation to support the credit.
Claiming the Subsidy When There is More Than One Company
In the case of a group health plan that covers employees of different employers that are members of a
single controlled group, each member is treated as a separate employer for payroll tax purposes.
Therefore, the person entitled to take the payroll tax credit attributable to the premium subsidy provided to
an assistance eligible individual is generally the former employer of the employee receiving the subsidy.
For a copy of the IRS guidance, visit: http://www.irs.gov/newsroom/article/0,,id=204708,00.html
This Benefits Update is intended to convey general information and may not take into account all the
circumstances relevant to a particular person’s situation.
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