On March 31, 2009, the IRS issued a notice relating to premium assistance for COBRA continuation coverage under the American Recovery and Reinvestment Act of 2009 (ARRA). Notice 2009-27 contains many helpful clarifications on the following topics:
- INVOLUNTARY TERMINATION
- ASSISTANCE ELIGIBLE INDIVIDUAL
- CALCULATION OF PREMIUM REDUCTION
- COVERAGE ELIGIBLE FOR PREMIUM REDUCTION
- RECAPTURE OF PREMIUM ASSISTANCE
- PAYMENTS TO INSURERS UNDER FEDERAL COBRA
- COMPARABLE STATE CONTINUATION COVERAGE
The Q&A section answers many nagging questions particularly on "involuntary termination" eligibility including the following as meeting the definition:
- An involuntary termination means any 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 (this leaves in question where employees accepting a "voluntary layoff" may qualify).
- Any temporary layoff with recall rights qualifies as a termination, but a reduction in hours does not qualify. However, an employee’s voluntary termination in response to an employer-imposed reduction in hours may be an involuntary termination if the reduction in hours is a material negative change in the employment relationship for the employee.
- Any termination elected by the employee in return for a severance package.
- Any 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.
Employers should be complying with the Notice requirement of the ARRA before April 18, 2009.