On March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA) into law. Included in the nearly 250 pages of statutory text is a provision that provides certain individuals (called “Assistance Eligible Individuals” or “AEIs”) with a 100% subsidy for COBRA continuation coverage for up to six months.
The COBRA subsidy begins on April 1, 2021, and will end on September 30, 2021. However, the subsidy will end earlier than September 30, 2021 if: (a) the individual loses eligibility for continuation coverage under the normal COBRA rules, such as when the 18-month maximum COBRA period has ended, or (b) becomes covered under any other group health plan (as an employee or otherwise), or certain individual coverages including Medicare and Medicaid.
Qualifying AEI pay no cost for monthly COBRA premiums if the individual is eligible for COBRA coverage during the subsidy period (i.e., April 1, 2021 to September 30, 2021). To be clear, the subsidy period does not extend the maximum COBRA coverage period (i.e., 18 months). Instead, the ARPA simply suspends the AEI’s obligation to make COBRA premium payments for up to six months.
Assistance Eligible Individuals
Individuals who voluntarily terminate their employment are not eligible for COBRA or the COBRA subsidies. However, the ARPA defines “assistance eligible individuals” to include the following individuals who are or become eligible for COBRA as the result of an involuntary termination of employment or reduction in hours:
- Individuals who were previously eligible for COBRA continuation coverage, but who did not elect COBRA and have coverage that would have extended into the subsidy period (e.g., an individual laid off on September 30, 2020, and would have been eligible for COBRA coverage for up to 18 months, but who did not elect COBRA);
- Individuals who were previously eligible for COBRA continuation coverage, elected coverage, but later dropped coverage, and that coverage (had it not been dropped) would have extended into the subsidy period (e.g., an individual who was laid off on September 30, 2020, elected COBRA and could have continued COBRA coverage for up to 18 months, but did not pay premiums after January 31, 2021); and
- Individuals who are or become eligible during the six-month “subsidy period” from April 1, 2021 to September 30, 2021 (e.g., an individual involuntarily terminated on or after March 31, 2021 or had a reduction in hours significant enough to qualify them for COBRA coverage for up to 18 months).
New COBRA Notices
The ARPA requires three separate notices to AEIs: (1) a Notice of the Availability of Premium Assistance; (2) a Notice of Extended Election Period; and (3) a Notice of Expiration of Subsidy.
The DOL recently released model notices and frequently Asked Questions (FAQs). They can be found at https://www.dol.gov/cobra-subsidy. The new notices need to be sent by May 31, 2021, which is 60 days from the April 1, 2021 start date for premium assistance. The new “expiration” notice needs to be provided 15-45 days before the individual’s premium assistance expires.
Mechanics of the COBRA Subsidy
Under the ARPA, the employer, the plan (in the case of a multi-employer plan), or the insurer (for fully-insured coverage), has an obligation to provide subsidized COBRA coverage and pay or incur the AEI’s COBRA premium cost during the “subsidy period” (i.e., April 1, 2021 to September 30, 2021). AEIs, in contrast, pay nothing during the subsidy period.
Claiming the Tax Credits
Most employers sponsoring insured or self-funded group health plans covered by the law will be reimbursed by the federal government for 100% of each eligible individual’s COBRA premium (including the administrative fee) for April 2021 through September 2021. The subsidy will take the form of a Medicare payroll tax credit, which could result in direct payment to employers whose Medicare tax liability is less than the credit. The employer may recover the cost of the coverage plus the 2% administrative fee from the federal government by claiming a credit against its quarterly Medicare payroll tax liability.
Tax credits are also available for COBRA coverage provided by Taft-Hartley multiemployer plans. However, the logistics for claiming the credit will be determined by subsequent regulations issued by the DOL.
Bottom Line
As you can see, there are still many details that need to be worked out in future regulatory guidance.