As expected, on April 15, 2010 President Obama signed into law an extension of the COBRA premium subsidy through May 31, 2010 (Continuing Extension Act of 2010). An individual is eligible for the subsidy if the individual elects COBRA coverage after an involuntary termination of employment. Eligible individuals pay only 35 percent of their COBRA premiums; the remaining 65 percent is paid by the employer. The premium reduction ends after 15 months of the reduction, upon eligibility for other group coverage (or Medicare) or when COBRA coverage ends, whichever occurs first. The employer may recover the subsidy amount as a credit on its quarterly employment tax return if it has provided the subsidy and received the 35 percent premium payment from the individual.
Additionally, there are income limits. If an individual’s income exceeds $145,000 (or $290,000 for joint filers), the premium reduction amount during the tax year must be repaid. For individuals who earn 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.
It appears many members of Congress are seeking to extend the premium subsidy through the end of the year, but there is debate about how the premium subsidy, as well as a similar extension of unemployment benefits, should be funded. The current extension was designated as emergency funding, allowing Congress to avoid the pay-as-you-go rules that would have required offsets to pay for the extended benefits, while now allowing Congress to work on passage of a longer-term extension. Pundits predict that given that this is an election year, as we get closer to election it is highly likely that Congress will pass extension legislation, whether in short pieces or one long act, through the end of the year.