The federal American Recovery and Reinvestment Act of 2009 (ARRA), passed in February, provides individuals involuntarily terminated between February 17, 2009 and December 31, 2009 with a 65 percent reduction in their Consolidated Omnibus Budget Reconciliation Act (COBRA) premium.

In order to qualify for COBRA, an individual would need to be enrolled in a group health insurance plan the day before employment is terminated and make a COBRA election.

The ARRA allows eligible individuals to pay a reduced rate of 35 percent (rather than 100 percent) of the COBRA premium. The remaining 65 percent is reimbursed to the coverage provider (employer) through a tax credit. This premium reduction is limited to nine months.

For example, if an individual was laid off on December 31, 2009 (the last day that the COBRA reduction benefit is available) he/she would be entitled to premium reduction benefits through September 2010.

In California, this COBRA reduction applies to all group plans—large or small. The trigger for invoking this subsidized benefit is an involuntary termination of employment.

Termination Questions/Answers
Many questions have arisen as to what constitutes an involuntary termination. The following questions and answers provide some guidance:

• If a leave of absence is not extended and the employee is unable to return to work, is he/she covered under the new COBRA subsidy provisions?

Yes, ending an employee’s employment on the basis of failure of the employee to return to work following the expiration of an approved leave of absence would constitute an involuntary termination.

• If an employee has not reported to work or called in for a week and we terminate his/her employment, would the COBRA subsidy apply?

Yes, regardless of the reason for termination, the ending of employment is not per the employee’s choice and the COBRA subsidy would apply.

• We have given a group of employees the option of taking a voluntary leave or furlough in lieu of being laid off. Will they be eligible for the COBRA subsidy?

Yes, regardless of the terminology used in regard to a layoff, employees are eligible for the COBRA subsidy.

• What if an employee has changed his/her mind after giving a resignation notice and now does not want to quit? We have already replaced him/her. Which COBRA notices do we provide to the employee?

If the employee has not yet left work and now is indicating that he/she does not want to quit, there is no voluntary resignation and the employee should get the COBRA Notice and COBRA Subsidy Addendum.

More Information
COBRA forms and the new COBRA subsidy Addendum - Model General Notice Abbreviated Form are available on HRCalifornia. For further information pertaining to your plan, notices and COBRA elections, contact your insurance provider.

The Labor Law Helpline is a service to California Chamber of Commerce preferred and executive members. For expert explanations of labor laws and Cal/OSHA regulations, not legal counsel for specific situations, call (800) 348-2262 or submit your question at www.hrcalifornia.com.

Where Can You Get More Information? Check out the Compliance Section of the Chamber Store. The Chamber is where you can get the HR Handbook for California and the California Labor Digest at the LOWEST price! Napa Chamber members are able to receive all of their required products at greatly reduced rates. Contact Lynn Page at (707) 254-1145 or click here to visit our online Chamber Store.

Reprinted with permission from the California Chamber of Commerce.