IRS Publishes New COBRA Eligibility Guidance

April 1, 2009 ( - The Internal Revenue Service has published guidance on the new federal COBRA premium subsidies.

Notice 2009-27 is guidance provided under section 3001 of the American Recovery and Reinvestment Act of 2009 (ARRA) “relating to the premium reduction for individuals who were involuntarily terminated and are electing COBRA continuation coverage under the group health plan of their former employer,” according to the IRS.  

Section 3001 of ARRA provides for a 65% reduction in the premium otherwise payable by “certain involuntarily terminated individuals and their families” who elect COBRA continuation health coverage under the provisions of the Internal Revenue Code (Code), the Employee Retirement Income Security Act of 1974 (ERISA), and the Public Health Service Act (this premium reduction also applies to temporary continuation coverage elected under the Federal Employees Health Benefits Program (FEHBP) and to continuation health coverage under State programs that provide for coverage comparable to COBRA continuation coverage).  

Assistance Eligible

Under the new provision, an assistance eligible individual is generally an individual who:

  1. is a qualified beneficiary as the result of an involuntary termination during the period from September 1, 2008, through December 31, 2009,
  2. is eligible for COBRA continuation coverage at any time during that period, and
  3. elects the coverage.

As for what constitutes an “involuntary termination,” the IRS clarifies that that means a severance from employment “due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.”   That can 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. In addition, an employee-initiated termination from employment constitutes an involuntary termination from employment for purposes of the premium reduction if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee.

Termination of Employment, Not Health Coverage

The IRS notes that involuntary termination is the involuntary termination of employment, not the involuntary termination of health coverage. “Thus, qualifying events other than an involuntary termination, such as divorce or a dependent child ceasing to be a dependent child under the generally applicable requirements of the plan (such as loss of dependent status due to aging out of eligibility), are not involuntary terminations qualifying an individual for the premium reduction,” according to the IRS.   Additionally, the IRS says involuntary termination does not include the death of an employee or absence from work due to illness or disability.   However, the IRS says that the determination of whether a termination is involuntary is based on “all the facts and circumstances.”

The IRS guidance notes that group health plans must generally treat assistance eligible individuals who pay 35% of the premium otherwise payable for COBRA continuation coverage as having paid the full amount of the premium.   Further, that the employer (or, in certain circumstances, the multiemployer health plan or the insurer) is reimbursed for the other 65% of the premium that is not paid by the assistance eligible individual through a credit against its payroll taxes.

The premium reduction applies as of the first period of coverage beginning on or after February 17, 2009 (the date of enactment of ARRA).   The IRS notes that an assistance eligible individual is eligible for the premium reduction for up to nine months from the first month the premium reduction provisions of section 3001 of ARRA apply to the individual, and that the premium reduction period ends if the individual becomes eligible for coverage under any other group health plan1 or for Medicare benefits.   Further, that an individual receiving the premium reduction who becomes eligible for coverage under any other group health plan or Medicare is required to notify the group health plan of eligibility for that other coverage – and if they do not, the individual is subject to a tax penalty of 110% of the premium reduction improperly received after eligibility for the other coverage.

The guidance also includes clarification of other situations that can constitute involuntary termination in a series of questions and answers.  

Notice 2009-27 is online at