Fact Sheet 

U. S. Department of Labor 

Employee Benefits Security Administration 

April 26, 2010 

COBRA PREMIUM REDUCTION 

  

The American Recovery and Reinvestment Act of 2009 (ARRA), as amended, provides for premium 

reductions for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, 

commonly called COBRA. The premium assistance is also available for continuation coverage under 

certain State laws. “Assistance Eligible Individuals” pay only 35 percent of their COBRA premiums; the 

remaining 65 percent is reimbursed to the coverage provider through a tax credit. The premium reduction 

applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 

months. 

Eligibility for the Premium Reduction 

An "assistance eligible individual" is the employee or a member of his/her family who elects COBRA 

coverage timely following a qualifying event related to an involuntary termination of employment that 

occurs at any point from: 

 September 1, 2008 through May 31, 2010; or 

 March 2, 2010 through May 31, 2010 if: 

o the involuntary termination follows a qualifying event that was a reduction of hours; and 

o the reduction of hours occurred at any time from September 1, 2008 through May 31, 

2010. (A reduction of hours is a qualifying event when the employee and his/her family 

lose coverage because the employee, though still employed, is no longer working enough 

hours to satisfy the group health plan’s eligibility requirements.) 

 Generally, the maximum period of continuation coverage is measured from the date of the 

original qualifying event (for Federal COBRA, this is generally 18 months). However, ARRA, as 

amended, provides that the 15 month premium reduction period begins on the first day of the 

first period of coverage for which an individual is “assistance eligible.” This is of particular 

importance to individuals who experience an involuntary termination following a reduction of 

hours. Only individuals who have additional periods of COBRA (or state continuation) coverage 

remaining after they become assistance eligible are entitled to the premium reduction. 

 For purposes of ARRA, COBRA continuation coverage includes continuation coverage required 

under Federal law (COBRA or Temporary Continuation Coverage) or a State law that provides 

comparable continuation coverage (for example, so-called "mini-COBRA" laws). 

 Those who are eligible for other group health coverage (such as a spouse's plan or new employer’s 

plan) or Medicare are not eligible for the premium reduction. There is no premium reduction for 

periods of coverage that began prior to February 17, 2009. 

 Assistance eligible individuals who pay 35 percent of their COBRA premium must be treated as 

having paid the full amount. The premium reduction (65 percent of the full premium) is 

reimbursable to the employer, insurer or health plan as a credit against certain employment taxes. 
What is COBRA? 

COBRA gives workers and their families who lose their health benefits the right to purchase group health 

coverage provided by the plan under certain circumstances. 

If the employer continues to offer a group health plan, the employee and his/her family can retain their 

group health coverage for up to 18 months by paying group rates. The COBRA premium may be higher 

than what the individual was paying while employed, but generally the cost is lower than that for 

private, individual health insurance coverage. 

The plan administrator must notify affected employees of their right to elect COBRA. The employee and 

his/her family each have 60 days to elect the COBRA coverage; otherwise, they lose all rights to COBRA 

benefits. 

COBRA generally does not apply to plans sponsored by employers with fewer than 20 employees. Many 

States have similar requirements for insurance companies that provide coverage to small employers. The 

premium reduction is available for insurers covered by these State laws. 

Period of Coverage 

The premium reduction applies to periods of coverage beginning on or after February 17, 2009. A period 

of coverage is a month or shorter period for which the plan charges a COBRA premium. The premium 

reduction for an individual ends upon eligibility for other group coverage (or Medicare), after 15 months 

of the reduction, or when the maximum period of COBRA coverage ends, whichever occurs first. 

Individuals paying reduced COBRA premiums must inform their plans if they become eligible for 

coverage under another group health plan or Medicare. 

Notice Requirements 

ARRA, as amended by the Continuing Extension Act of 2010 (CEA), mandates that plans notify certain 

current and former participants and beneficiaries about the premium reduction. The Department has 

updated its existing models to help plans and individuals comply with these requirements. Each model 

notice is designed for a particular group of individuals and contains information to help satisfy ARRA's 

notice provisions, including those modified by CEA. 

Plans subject to the Federal COBRA provisions must provide a General Notice to all qualified beneficiaries, 

not just covered employees, who experienced a qualifying event at any time from September 1, 2008 

through May 31, 2010, regardless of the type of qualifying event, and who have not yet been provided 

an election notice. Plans MUST provide the updated General Notice within the required timeframes for 

providing a COBRA election notice. The updated model General Notice includes information on the 

premium reduction as well as information required in a COBRA election notice. 

Plans that are subject to COBRA continuation provisions under Federal or State law should provide a 

Notice of New Election Period to ALL individuals who: 

 experienced a qualifying event that was a reduction of hours at any time from September 1, 2008 

through May 31, 2010; 

 subsequently experience a termination of employment at any point from March 2, 2010 through 

May 31, 2010; AND 

 either did not elect COBRA continuation coverage when it was first offered OR elected but 

subsequently discontinued COBRA. 

Generally, individuals who have experienced a qualifying event that consists of a reduction of hours and 

who, from March 2, 2010 through May 31, 2010, experience an involuntary termination of 
employment MUST be provided this notice within 60 days of the event. Pursuant to CEA, for the April 1, 

2010 through April 14, 2010 period, the notice requirement attaches to any termination of employment. 

The Department strongly recommends that notice be provided to individuals who experienced any 

termination of employment because employers may be subject to civil penalties if it is later determined 

that the termination was involuntary and notice was not provided. The Department has updated its 

model Notice of New Election Period. Using this model to provide notice to these individuals satisfies the 

requirements of ARRA, as amended by CEA. 

Plan administrators must also provide notice to certain other individuals who have already been provided 

a COBRA election notice that did not include information regarding ARRA, as amended by CEA. The 

Department has updated two existing models to assist plans in these areas. 

Plans that are subject to COBRA continuation provisions under Federal law and insurers subject to 

continuation coverage requirements under State law must provide the Supplemental Information Notice. 

It should be provided to ALL individuals who elected and maintained continuation coverage based on the 

following qualifying events: 

 terminations of employment that occurred at some time on or after March 1, 2010 through April 

14, 2010 for which notice of the availability of the premium reduction available under ARRA was 

not given; or 

 reductions of hours that occurred during the period from September 1, 2008 through May 31, 

2010 which were followed by a termination of the employee's employment that occurred on or 

after March 2, 2010 and by May 31, 2010. 

For the first item above plans MUST provide this notice to all individuals with a qualifying event related 

to any termination of employment if they have not already been provided notice of their rights under 

ARRA. This notice must be provided before the end of the required time period for providing a COBRA 

election notice. For the second item above, generally, individuals who experience an involuntary 

termination of employment from March 2, 2010 through May 31, 2010 after experiencing a qualifying 

event that consists of a reduction of hours MUST be provided this notice within 60 days of the 

termination of employment. However, as has been noted, CEA requires plans to provide notices to all 

individuals with qualifying events related to ANY termination of employment that occurred from April 1, 

2010 through April 14, 2010. In those cases, this notice MUST be provided before the end of the required 

time period for providing a COBRA election notice.1

 Because employers may be subject to civil penalties if 

it is later determined that the termination was involuntary, the Department strongly recommends that 

notice be provided to individuals who experienced any termination of employment. The Department has 

updated its model Supplemental Information Notice. Using this model to provide notice to these 

individuals satisfies the requirements of ARRA, as amended by CEA. 

Plans that are subject to COBRA continuation provisions under Federal law and insurers subject to 

continuation coverage requirements under State law must provide the Notice of Extended Election Period. 

It must include the information described above and be provided to ALL individuals who experienced a 

qualifying event that was a termination of employment from April 1, 2010 through April 14, 2010, 

were provided notice that did not inform them of their rights under ARRA, as amended by CEA, and 

either chose not to elect COBRA continuation coverage at that time OR elected COBRA but subsequently 

discontinued that coverage. This notice MUST be provided before the end of the required time period for 

providing a COBRA election notice. The Department has updated its model Notice of Extended Election 

Period. Using this model satisfies the requirements of ARRA, as amended by CEA. 

Insurance issuers that provide group health insurance coverage must provide notice to persons who 

became eligible for continuation coverage under a State law. The Department updated its model 

 

1

 ARRA section 3001(a)(7) provides that COBRA election notices provided for qualifying events occurring during the 

effective dates of the premium reduction program are not complete if they fail to include information on the 

availability of the premium reduction. 
Alternative Notice to assist issuers with satisfying this requirement. However, continuation coverage 

requirements vary among States and issuers should modify this model notice as necessary to conform it 

to the applicable State law. Issuers may also find one (or more) of the other models appropriate for use in 

certain situations. 

Expedited Review of Denials of Premium Reduction 

Individuals who are denied treatment as assistance eligible individuals and thus are denied eligibility for 

the premium reduction (whether by their plan, employer or insurer) may request an expedited review of 

the denial by the U.S. Department of Labor. The Department must make a determination within 15 

business days of receipt of a completed request for review. The official application form is available at 

www.dol.gov/COBRA and can be filed online or submitted by fax or mail. 

Switching Benefit Options 

If an employer offers additional coverage options to active employees, the employer may (but is not 

required to) allow assistance eligible individuals to switch the coverage options they had when they 

became eligible for COBRA. To retain eligibility for the ARRA premium reduction, the different coverage 

must have the same or lower premiums as the individual's original coverage. The different coverage 

cannot be coverage that provides only dental, vision, a health flexible spending account, or coverage for 

treatment that is furnished in an on-site facility maintained by the employer. 

Income limits 

If an individual's modified adjusted gross income for the tax year in which the premium assistance is 

received exceeds $145,000 (or $290,000 for joint filers), then the amount of the premium reduction 

during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and 

$145,000 (or $250,000 and $290,000 for joint filers), the amount of the premium reduction that must 

be repaid is reduced proportionately. Individuals may permanently waive the right to premium reduction 

but may not later obtain the premium reduction if their adjusted gross incomes end up below the limits. 

If you think that your income may exceed the amounts above, consult your tax preparer or contact the 

IRS at www.irs.gov. 

New Penalty Provision 

ARRA provides that the appropriate Secretary may assess a penalty against a plan sponsor or health 

insurance issuer of up to $110 per day for each failure to comply with such Secretary’s determination 10 

days after the date of the plan sponsor’s or issuer’s receipt of the determination. 

For further information, visit www.dol.gov/COBRA, contact EBSA electronically at 

www.askebsa.dol.gov, or call a Benefits Advisor toll-free at 1-866-444-3272. 

This fact sheet has been developed by the U.S. Department of Labor, Employee Benefits Security Administration, Washington, DC 

20210. It will be made available in alternate formats upon request: Voice phone: 202-693-8664; TTY: 202-501-3911. In 

addition, the information in this fact sheet constitutes a small entity compliance guide for purposes of the Small Business 

Regulatory Enforcement Fairness Act of 1996.