The Internal Revenue Service has issued guidance to clarify the COBRA benefits offered under the recently passed stimulus bill.

Under Section 3001 of the American Recovery and Reinvestment Act of 2009, the federal government will cover 65 percent of the COBRA premiums for employees who have been laid off between Sept. 1, 2008 and Dec. 31, 2009 for up to nine months.

Notice 2009-27 offers guidance relating to the premium reduction for individuals who were involuntarily terminated and are electing COBRA continuation coverage under the group health plan of their former employer.  The notice will appear in IRB 2009-16 dated April 20, 2009.

The premium reduction also applies to temporary continuation coverage elected under the Federal Employees Health Benefits Program and to continuation health coverage under state programs that provide for coverage comparable to COBRA continuation coverage.

The premium reduction applies as of the first period of coverage beginning on or after Feb. 17, 2009 (the date of enactment of ARRA). An individual is eligible for the premium reduction for up to nine months from the first month the premium reduction provisions of Section 3001 of ARRA apply to the individual. The premium reduction period ends if the individual becomes eligible for coverage under any other group health plan  or for Medicare benefits.

The premium reduction does not extend beyond the period of COBRA continuation coverage. An individual receiving the premium reduction who becomes eligible for coverage under any other group health plan or Medicare is required to notify the group health plan of eligibility for that other coverage. If the individual fails to notify the group health plan, the individual is subject to a tax penalty of 110 percent of the premium reduction improperly received after eligibility for the other coverage.

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