Rescue Plan Requires Employers to Provide Free COBRA Coverage
Article Updated September 17, 2021
The American Rescue Plan Act of 2021 requires all employers to whom COBRA applies to offer free COBRA coverage for up to six months to workers who lost health insurance due to involuntary termination of employment or a reduction in hours. The requirement went into effect on April 1, 2021. The free coverage is to be offset by tax credits to the entity providing the free coverage. Specifically, the Act allows employers to claim a refundable tax credit for any COBRA premiums waived due to the subsidy provision. Employers claim this credit through their quarterly Medicare tax filings as an offset to the liability the employer would otherwise have for Medicare taxes. The new law requires prompt action from employers and health plan administrators.
What is the Benefit?
Eligible individuals are to be provided a 100% COBRA premium subsidy for the six months starting April 1, 2021, through September 30, 2021.
Who Gets the Benefit?
An individual eligible for benefits under the Act is referred to as an “Assistance Eligible Individual” (“AEI”). An AEI is a COBRA qualified beneficiary eligible for COBRA coverage due to involuntary termination of employment or reduction in hours and who actually elects COBRA coverage. AEIs include both the employee and eligible family member dependents. Importantly, an individual who previously declined COBRA or dropped COBRA and who would otherwise currently be eligible for COBRA if a COBRA election were in effect is eligible for the COBRA subsidy if certain election requirements are satisfied.
How is the Benefit Provided?
Each AEI is deemed to have satisfied the requirement to pay premiums for a maximum period of April 1, 2021, through September 30, 2021. Therefore, AEIs who elected and are currently receiving COBRA coverage should have their premiums waived starting April 1, 2021. AEIs who previously dropped or declined COBRA coverage are allowed a window period to elect coverage during the six-month subsidy period. It is important to note that the subsidy is available only so long as the individual remains eligible for COBRA. The Act does not extend the availability of COBRA coverage beyond the 18 months following the involuntary termination or reduction in hours. This means, for example, that an employee (or his or her dependents) whose COBRA rights have expired as of April 1, 2021, are not eligible for the subsidy.
What is the Election Process?
AEIs not currently on COBRA will have 60 days from the date the employer notifies them of the COBRA premium subsidy’s availability to opt-in. The Department of Labor (“DOL”) is mandated to publish model notices within 30 days of the Act’s passage. Whether the DOL meets this requirement or not, employers are required to notify AEIs of their election option by May 31, 2021. AEIs have the right to retroactive subsidized coverage back to April 1, 2021. Their subsidized coverage does not expire until the end of the individual’s maximum COBRA coverage period or September 30, 2021, whichever is earlier.
Importantly, the ARPA required employers to notify each “assistance eligible individual” (employees who lost group coverage due to reduced hours or involuntary termination and who elect coverage) no more than 45 days, but no less than 15 days, before his or her subsidy termination date that their subsidized coverage is about to end. For most individuals still receiving subsidized coverage, this means they must be notified of the September 30 termination date no later than September 15, 2021. No notice is required, however, to those individuals whose premium assistance expires due to their eligibility for another group health plan or Medicare.
The expiration notice must specify that (1) premium assistance for the individual is about to expire, (2) the date of the expiration, and (3) that the individual may be eligible for coverage without any premium assistance through COBRA continuation coverage or coverage under a group health plan, Medicaid, or the Health Insurance Marketplace. The U.S. Department of Labor (the “DOL”) published guidance and a model form employers may utilize in providing notice of the expiration of ARPA’s premium subsidy. This model notice form can be obtained or viewed on the DOL’s website, please visit:
What Should Employers Do Now?
Employers should work with their COBRA vendors to coordinate not only communication of the required notices, but also to determine which former employees and dependents will be eligible to receive notice. Employers should also modify existing notices for any individuals who become eligible for COBRA coverage during the subsidy period. Finally, employers should work with their COBRA vendors and tax professionals to clarify their understanding of which entity is actually providing the subsidy and, accordingly, which entity is entitled to claim the tax credits.
For more information, visit the U.S. Department of Labor’s COBRA Premium Subsidy website page and read FAQs About COBRA Premium Assistance Under the American Rescue Act of 2021.
The preceding summary of COBRA requirements for employers was provided by Masud Labor Law.