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American Recovery Act & Cobra

The American Recovery and Reinvestment Act of 2009 (ARRA) was implemented in an effort to support the failing American economy through tax credits and incentives. ARRA also established programs to help displaced employees maintain health insurance coverage at reduced rates. In addition, ARRA allows employers to claim premium assistance for the Consolidated Omnibus Budget Reconciliation Act (COBRA) benefits paid on behalf of former employees.

  1. Coverage Eligibility

    • Under ARRA, those who involuntarily lost their jobs between Sept. 1, 2008 and May 31, 2010 generally qualify for a subsidy that helps pay the cost of the medical insurance provided by their former employer. Under certain circumstances, if a worker's hours were reduced during the same time period, and he was terminated between March 2, 2010 and May 31, 2010, he may also qualify for COBRA payment assistance.

    Premium Subsidy

    • Because ARRA did not extend the COBRA coverage assistance when the Unemployment Compensation Extension Act of 2010 was signed into law on July 22, 2010, COBRA assistance expired at the end of May. However, according to the United States Department of Labor, those who lost their jobs prior to the expiration date may continue to receive the subsidy for the full 15 months if not eligible for Medicare or another group health plan. The COBRA subsidy pays 65 percent of COBRA premiums.

    Employer Credit

    • Under ARRA's continuing health care insurance coverage, employers get credit for the 65 percent they pay on behalf of the former employee's health care coverage. In order to claim the benefit, employers treat the 35 percent payment made by the employee as payment-in-full for the former employee's health insurance. The employer must maintain documentation that proves the employee paid his share of the premium, a copy of the invoice from the health insurance plan, proof of payment of the full premium and a declaration stating the former employee was involuntarily terminated. The employer claims the credit on Form 941, the Employer's Quarterly Federal Tax Return.

    Health Coverage Tax Credit

    • As an alternative to the COBRA subsidy, some workers may take advantage of the Health Coverage Tax Credit, which helps certain individuals maintain health insurance coverage through monthly or yearly credits, according to the IRS. To qualify for HCTC, you must receive Trade Adjustment Assistance benefits; or pension payments from the Pension Benefit Guaranty Corporation and have reached the age of 55; or be enrolled in a qualified health plan; or meet HCTC general requirements, which include: paying 50 percent of the premiums of a qualified health care plan; not being enrolled in Medicare Part A, B or C; not receiving Medicaid; not being eligible for benefits through the military's heath system; not enrolled in the Federal Employees Health Benefits Program; not in prison; not receiving the 65 percent COBRA premium reduction; and another person cannot claim you on his income tax return.

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