COBRA premium subsidy: what's an "involuntary" termination?

Some view the new COBRA premium subsidy, enacted as part of the American Recovery and Reinvestment Act (or the “stimulus act”) as something of a stop-gap measure, as policymakers debate health care reform—a way to continue affordable (or more affordable, anyway) coverage for those who otherwise would join the ranks of the uninsured.

Availability of the premium subsidy is limited, though, to those who are “involuntarily terminated.” In Notice 2009-27, the IRS begins to answer a key question for employers and insurers tasked with the responsibility of administering the subsidy: what does the stimulus act mean by “involuntary” termination?

According to the IRS, the following scenarios are involuntary termination, for which the subsidy must be provided:

• A lay-off period with a right of recall or a temporary furlough period;


• "Voluntary" early retirement, if the facts indicate that, absent retirement, the employer would have terminated the employee's services;


• Termination for cause (except for "gross misconduct");


• Resignation, when to keep the job the employee would have been forced to move to a "materially" different geographic area;


• A lockout initiated by the employer; and


• A "buy-out", in which the employer indicates that after a severance package offer period, a certain number of remaining employees in the employee's group will be terminated.

More COBRA information is available here and here.