COBRA Subsidies under the American Rescue Plan Act of 2021
In March 2021, the American Rescue Plan Act of 2021 (“ARPA-21”) was enacted. Among other provisions, ARPA-21 includes premium assistance relief for Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) coverage. COBRA coverage provides certain group health plan continuation coverage rights for individuals covered by a group health plan. Generally, COBRA provides the option for an individual to continue their group health insurance when they lose coverage due to a qualifying event (such as a termination of employment or a reduction in hours). Federal COBRA requirements only apply to group health plans sponsored by employers with 20 or more employees. However, the ARPA-21 premium assistance is also available for continuation coverage under certain State laws (generally referred to as state mini-COBRA laws) as well as federal COBRA. The premium assistance is available from April 1, 2021 through September 30, 2021.
Individuals may be eligible for COBRA premium assistance if they are eligible for and elect COBRA (or state) continuation coverage because of a reduction in hours or an involuntary termination from employment. The reason for the involuntary termination or reduction in hours does not need to be related to COVID. The qualifying event (involuntary termination or reduction in hours) does not need to occur between April 1, 2021 and September 30, 2021.
Federal COBRA generally lasts up to 18 months (longer if there is a second qualifying event) and ARPA-21 does not extend the length of time an individual may be on COBRA. As a result, employees involuntary terminated, or with a reduction in hours, anytime after October 1, 2019 may still be eligible for the subsidy as their 18-month eligibility for COBRA has not expired. If an individual was offered COBRA coverage as a result of a reduction in hours or an involuntary termination of employment, and they declined it, or elected COBRA and later discontinued it, they may have another opportunity to elect COBRA and receive the premium assistance.
Eligible individuals who qualify for and elect COBRA and the premium assistance will not be reimbursed for coverage, but will be treated as having paid their COBRA premium in full each month. Employers will be reimbursed for the premium costs by the federal government through a dollar-for-dollar credit against the employer’s payroll taxes. If the amount of the credit the employer is entitled to is more than the payroll tax liabilities, the employer is eligible for a refund of the excess as if it were an overpayment of payroll taxes. The IRS is expected to release additional guidance, forms, and/or instructions regarding this reimbursement.
In addition to normal COBRA notice requirements, Employers are required to notify certain eligible individuals about the premium assistance and other information about their rights under ARPA-21.
General COBRA Notice: Employers must distribute a general notice to all qualified beneficiaries who have a qualifying event that is a reduction in hours or an involuntary termination of employment from April 1, 2021 through September 30, 2021. This notice may be provided separately or with the COBRA election notice following a COBRA qualifying event.
Extended COBRA Election Period: Employers must distribute a notice of the extended COBRA election period to any eligible individual (including those who were already offered COBRA coverage as a result of a reduction in hours or an involuntary termination of employment, and they declined it, or elected COBRA and later discontinued it) who had a qualifying event before April 1, 2021. This notice must be provided by May 31, 2021.
Premium Assistance: COBRA election notices furnished between April 1, 2021 and September 30, 2021 must (in addition to the existing requirements for COBRA election notices) provide information about the availability of premium assistance for COBRA coverage under ARPA-21.
The DOL created model notices that employers are encouraged to use. The model notices are available here: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy.
Employers should identify individuals who may be eligible for the ARPA-21 COBRA subsidy and should review the model notices to distribute to all eligible individuals. Additionally, employers should consider how the APRA-21 COBRA subsidy will impact future involuntary terminations and any severance packages. Employers that don’t satisfy COBRA continuation coverage requirements may be investigated by the Department of Labor and may be subject to an excise tax under the Internal Revenue Code.
If you have questions regarding COBRA subsidies or any other employment-related concerns, please contact Caitlin Andersen at (952) 921-4619 or firstname.lastname@example.org, or any other attorney at Peters, Revnew, Kappenman & Anderson, P.A.