President Barack Obama is expected to sign the American Recovery
and Reinvestment Act—commonly known as the economic
stimulus package—into law on February 17. Among its many
measures to provide relief for the unemployed, the act creates a
temporary subsidy to assist laid-off employees in continuing
employer-provided health care benefits under COBRA and comparable
state and governmental continuation coverage requirements. The
subsidy does not apply to health flexible spending account
benefits.
Before the newly enacted changes to COBRA, employees electing
COBRA continuation coverage had to pay up to 102 percent of the
cost of the premiums for such coverage. The new law provides that
COBRA continuation premiums for employees who are involuntarily
terminated between September 1, 2008 and December 31, 2009 may not
exceed 35 percent of the cost— effective March
1—with the remaining percentage to be subsidized by
employers. Employers will then be able to claim a tax
