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IRS Provides Reporting Mechanism for COBRA Subsidy Misuse

    Client Alerts
  • September 04, 2009

The American Recovery and Reinvestment Act of 2009 (“ARRA”) includes a COBRA subsidy for certain individuals involuntarily terminated from employment between September 1, 2008 and December 31, 2009.  The subsidy requires employers or insurers (depending on the type and size of the plan) to subsidize 65% of the cost of COBRA for such individuals and their dependants as long as these individuals do not qualify for other group health coverage or Medicare (collectively, “Other Coverage”).  Under the terms of ARRA, once individuals or their dependents qualify for Other Coverage, they must notify their plan in writing that they are no longer eligible for the COBRA subsidy. If an individual receives the COBRA subsidy while they are eligible for Other Coverage, the IRS may impose a penalty of 110% of the subsidy provided after the individual became eligible for Other Coverage.

Until recently, it was unclear how a group health plan could report an individual’s misuse of the COBRA subsidy if it suspected an individual was eligible for Other Coverage.  However, the IRS recently stated that anyone who suspects that an individual receiving the COBRA subsidy may be eligible for Other Coverage can report this to the IRS by completing IRS Form 3949-A, Information Referral, available at:

The IRS also provided a mechanism for individuals to self-report their misuse of the COBRA subsidy to the IRS if they failed to notify their plan when they became eligible for Other Coverage.  Individuals may discuss their situation with the IRS by calling this toll-free number, (800-829-1040).

With this new guidance, group health plans that suspect they are subsidizing COBRA coverage for individuals who no longer qualify for the ARRA COBRA subsidy now have a mechanism to report such abuse.