The IRS has issued Notice 2009-27 addressing a lot of issues pertaining to the COBRA subsidy program under ARRA.
Please note that the Notice makes it clear about which entities are eligible to take the credit against payroll tax liabilities:
Under ARRA, the “person to whom premiums are payable” is based on the nature of the plan and which COBRA continuation coverage provisions apply. In the case of a group health plan that is a multiemployer plan, the multiemployer plan is allowed the credit. In the case of a group health plan subject to the Federal COBRA requirements or the temporary continuation coverage requirements under the FEHBP, or a group health plan under which some or all of the coverage is not provided by insurance, the employer maintaining the plan is allowed the credit. For any other group health plan subject to ARRA (generally, fully insured coverage subject to State continuation coverage requirements), the insurer providing coverage under the group health plan is allowed the credit. These are the exclusive rules for who may take the credit unless the Secretary provides otherwise pursuant to the authority in section 6432(b).
Also, Q & A 58 provides further coverage of this issue:
Q-58. In the case of an insured plan subject solely to State law requiring the insurer to provide continuation coverage, if the employer collects the reduced premiums from assistance eligible individuals and pays the full premium to the insurer, is the employer eligible to take the payroll credit directly?A-58. No. Under section 6432(b)(3), in the case of an insured plan subject solely to State law with respect to the requirement to provide continuation coverage, the only person entitled to be reimbursed for the premium reduction through the payroll credit (unless and until provided otherwise in future guidance) is the insurer providing the coverage under the group health plan.
The Notice also provides helpful guidance regarding what constitutes an involuntary termination of employment, for purposes of determining whether a terminated employee is entitled to the COBRA subsidy. Included is a statement that an “involuntary termination” does not include a reduction in hours, but that an employee’s voluntary termination in response to an employer-imposed reduction in hours “may be an involuntary termination if the reduction in hours is a material negative change in the employment relationship for the employee.”
So, it appears from this statement, that an employer might, due to economic conditions, reduce an employee’s hours, causing them to lose health care coverage, but the affected employee would not be entitled to the subsidy unless he or she went ahead and voluntarily terminated.
Finally, the Notice makes it clear that an employer may allow an eligible individual to elect coverage different from the coverage under the plan in which such individual was enrolled prior to the involuntary termination, but that the premium for coverage offered under this option cannot exceed the premium for the coverage the individual had prior to the involuntary termination.