SOS: American Rescue Plan Act Provides Free COBRA Coverage to Employees

The health care plan premiums eligible for the subsidy should include medical, dental, and vision; premiums for health care flexible spending accounts (FSAs) are not covered by the subsidy. The subsidized premiums are available from April 1, 2021, through September 30, 2021 (the Premium Assistance Period). Here’s what employers need to know:

Who Is Eligible?

• Individuals (referred to as “Assistance Eligible Individuals” (AEIs)) who have lost health care coverage as a result of an involuntary termination of employment or reduction in hours are eligible for the subsidized coverage. Individuals who left their employment or reduced their hours voluntarily are not eligible, nor are individuals who lost health care coverage as a result of another qualifying event, such as divorce or death. 
• An individual is an AEI if eligible for coverage during the Premium Assistance Period, regardless of when the termination or reduction in hours occurred, and regardless of whether the individual is maintaining COBRA coverage as of the beginning of the Premium Assistance Period. For example, if an individual was involuntarily terminated on June 27, 2020, and lost health care coverage as of June 30, 2020, that individual would be eligible for COBRA coverage for a minimum of 18 months (i.e., from July 1, 2020, through December 31, 2021). Because the Premium Assistance Period falls within the individual’s COBRA eligibility period, the individual is eligible for subsidized COBRA under the ARPA for the duration of the Premium Assistance Period. Although the individual continues to be eligible for COBRA benefits after September 30, 2021, premiums would no longer be subsidized.

May Employers Offer Different Coverage?

Employers are permitted, but not required, to allow AEIs to elect a different coverage option than the one in effect when they first lost their health insurance coverage, as long as the alternative coverage: (i) is offered to similarly situated employees; (ii) includes more than “excepted benefits,” like dental and vision; and (iii) does not cost more than the prior coverage.

Who Pays For The Subsidized Premiums?

COBRA subsidies are reimbursable to the employers/plan sponsors through Medicare payroll tax credits (limited to the Medicare payroll taxes employers are required to pay). Employers claim the credits on their quarterly payroll tax filings. The credit is refundable, and the employer will still benefit if the amount of the subsidy exceeds the actual Medicare payroll taxes owed.

What If An Individual Never Elected COBRA Coverage Or Permitted The Coverage To Lapse?

Individuals who lost health care coverage prior to April 1, 2021 and either did not elect COBRA or elected COBRA but discontinued it prior to April 1, 2021, but who would have been eligible for COBRA during the Premium Assistance Period based on the date of involuntary termination or reduction in hours, must be given a new opportunity to elect COBRA continuation coverage and receive the subsidized benefits. The new election period begins on April 1 and ends 60 days after the individual has been provided with notice of availability of the subsidy and the new enrollment period. This enrollment opportunity will permit AEIs to start, or restart, COBRA coverage retroactive to April 1, 2021; it will not extend their eligibility for COBRA coverage.

When Does The Subsidy End?

The subsidy ends on the earliest of the following dates:

• Expiration of the Premium Assistance Period (i.e., September 30, 2021);
• Expiration of the AEIs ordinary COBRA continuation coverage (as determined using the date of the individual’s involuntary termination or reduction in hours); or
• The date the AEI becomes available for coverage under another group health plan or Medicare. (Individuals who become eligible for coverage that would end the AEI’s premium assistance are required to notify the plan administrator of such coverage; failure to provide notice will result in a $250 fine, at a minimum.)

How Are AEIs Notified Of Their Subsidy Rights?

• AEIs who are COBRA participants as of April 1 or who suffer an involuntary termination or reduction in hours resulting in the loss of health insurance during the Premium Assistance Period must be provided with notice of their subsidy rights. The notices must contain certain information outlined in the ARPA. 
• AEIs who are eligible for the special enrollment and election opportunity must receive notice of these rights by May 31, 2021, as well as other information described in the ARPA.
• No earlier than 45 days before the subsidy expires and no later than 15 days prior, each AEI must receive written notice of the individual’s subsidy expiration date, the right to continue COBRA coverage without a subsidy if the maximum COBRA eligibility period has not expired, and any other coverage options that might be available. Model notices will be published by the DOL.

What Steps Must Employers Take?

• Immediately begin identifying AEIs so notice of premium assistance and/or the special election and enrollment period may be timely provided (although employers may want to wait for the model notices to be published before providing notice to AEIs).
• Reimburse any AEIs who pay premiums on and after April 1 within 60 days of any such payment.
• Update or ensure that plan administrators update existing COBRA notices and prepare the new notices required by the ARPA.
• Modify payroll systems as may be necessary to efficiently recover the subsidy from the Medicare taxes they would otherwise pay.