COBRA Subsidies Provided Under New COVID Relief Package
The American Rescue Plan Act of 2021 (ARPA), providing COVID-related relief in many forms, including premium subsidies for health insurance continuation under the Consolidated Omnibus Budget Reconciliation Act (COBRA), was signed into law on March 11, 2021.
Employees with an involuntary termination or reduction of hours will be eligible to receive a 100% subsidy of health insurance premiums under COBRA from April 1, 2021 to September 30, 2021. This will permit unemployed individuals (and their spouses and dependent children) to continue employer-sponsored health insurance coverage after losing employment without having to contribute towards any portion of their insurance premiums through September 30, 2021. Employees who voluntarily terminated their employment are not eligible for this subsidy. In addition, persons on COBRA due to other qualifying events are also not eligible for this COBRA subsidy.
Employers will receive reimbursements for this subsidy equal to the premium amounts in the form of tax credits. Employers will need to provide COBRA notice forms to eligible individuals, and plans will be required to alert people to the availability of the subsidy. Eligible persons will also need to be notified of their specific enrollment window and whether their subsidy will end before September 30, 2021. These notices will need to be distributed within 60 days following April 1, 2021. The U.S. Department of Labor is to provide model notices for this purpose by April 10, 2021.
Individuals who previously experienced an involuntary termination or reduction in hours, but did not elect COBRA, or those who elected and subsequently dropped COBRA coverage and are still within their COBRA maximum coverage period, must be given the opportunity to elect COBRA to take advantage of the subsidy available under ARPA. However, in no event is an individual eligible for more than the COBRA maximum coverage period measured from the date of the original qualifying event.
The COBRA subsidy ends immediately if an individual becomes eligible for coverage under another group health plan or Medicare. This subsidy would also end early if the individual’s maximum period of COBRA continuation coverage (typically 18 months) concludes prior to September 30, 2021. The burden is on the individual to inform their former employer that they are no longer eligible for subsidized COBRA coverage under ARPA. ARPA provides that any individual who fails to update their former employer about a change in eligibility is subject to a $250 fine (and up to 110% of the full subsidy amount if the failure to notify is determined to be deliberate).
Employers will recover the subsidized premiums through a refundable payroll tax credit (akin to the way in which employers recovered mandatory paid leave costs under the Families First Coronavirus Response Act).
While this subsidy goes into effect shortly, there are still many issues waiting for clarification which will hopefully be addressed as the U.S. Department of Labor releases the model notices and any other guidance.