Obama signs stimulus bill providing COBRA subsidy

DENVER—Employees who lose their jobs will be entitled to generous federal subsidies of their COBRA health insurance premiums under an economic stimulus bill signed into law Tuesday by President Barack Obama at a ceremony in Denver.

The federal government will pay 65% of COBRA premiums for employees who are laid off from Sept. 1, 2008, through Dec. 31, 2009. The subsidy will extend for nine months. However, individuals with an annual adjusted gross income of more than $125,000 and couples with an adjusted gross income of more than $250,000 will not be eligible for the subsidy.

Employers will face a significant communications and administrative challenge to comply with the COBRA provisions, which go into effect March 1.

Employees who were laid off since Sept. 1, 2008, and declined to opt for COBRA coverage will have a new right to enroll in COBRA, and employers are required to inform those individuals of that right.

In addition, laid-off employees now receiving COBRA will have to be informed of the new subsidy and their premium contributions will have to be adjusted—as of March 1—to reflect the new subsidy.

The Joint Committee on Taxation estimates that the subsidy could help 7 million individuals and their families. It also estimates that the subsidy will cost the government nearly $25 billion.