On March 11, 2021, President Biden signed into law The American Rescue Plan Act of 2021 (ARPA). Among the provisions, ARPA provides a 100% subsidy for employer-sponsored group heath insurance continued under COBRA and similar state continuation of coverage programs. The subsidy period will run from April 1st, 2021 through September 30th, 2021 and will be available to COBRA qualified beneficiaries who became eligible for COBRA coverage due to involuntary termination of employment or a reduction in hours of employment and elects (or elected) COBRA coverage that is effective during the subsidy period.
Let’s break it down….
Assistance Eligible Individuals (AEIs)
AEIs are Qualified Beneficiaries (QBs) who:
- Are eligible for COBRA coverage due to Involuntary Termination or Reduction of Hours
- Elect COBRA for some period within the ARP Act Subsidy window
- QBs who are eligible for COBRA and enroll for coverage on or after April 1, 2021;
- QBs who elected COBRA previously and remain enrolled as of April 1;
- QBs who were previously eligible for COBRA, did not elect at that time but are still within their 18-month maximum coverage period, and enroll during the special enrollment period created by ARP ACT that begins April 1; or
- QBs who previously elected COBRA, discontinued coverage or allowed it to lapse but are still within their 18-month maximum coverage period, and enroll now during the special enrollment period
The Subsidy Period or Premium Assistance Period
The period in which you are eligible for the subsidy. It begins upon the later of April 1, 2021, or the date that the AEI becomes eligible for COBRA coverage. The Subsidy Period ends upon the earliest of:
- September 30, 2021;
- The end of the 18-month maximum COBRA coverage period; or
- The date that the individual becomes eligible for other group health coverage or Medicare. An individual who becomes eligible for other group health coverage or Medicare must notify the plan. Group health coverage does not include excepted benefits, flexible spending accounts (FSAs), and qualified small employer HRAs (QSEHRAs).
What does this mean for employees?
Employees (or former employees) that lost their job involuntarily or lost their benefits due to a reduction in hours, and elected to continue their medical coverage through COBRA, will not have to pay for the cost of COBRA during the Subsidy Period.
AEI’s will also have an additional 60 days from the date the notice is sent (postmarked) to elect COBRA coverage at no cost through the subsidy.
An Election Period Extension is granted to AEI’s who previously either enrolled in COBRA coverage, but terminated the coverage or those that never enrolled in COBRA after the original qualifying election period.
AEI’s will also be given the opportunity to switch to other coverage offered to similarly situated active employees, if the plan allows for it, and provided that the new coverage is no more expensive than the prior coverage.
What does this mean for employers?
Employers must distribute initial notices to all AEI’s, no later than May 31st, 2021. The plan administrator must provide written notice to all individuals who are eligible for subsidized COBRA coverage. AEI’s can include qualified beneficiaries that go back to November 1st, 2019, since the 18-month maximum coverage period for a qualifying event on that date does not expire until the end of April 2021. For persons who first become eligible for COBRA coverage and the subsidy during the Subsidy Period, the notice obligation can be met by amending the usual COBRA election notice or by providing the required notices in a separate document. For persons who are eligible for subsidized COBRA coverage but did not elect COBRA coverage or elected COBRA coverage but discontinued the coverage, a new COBRA election notice must be provided.
If an AEI’s COBRA subsidy will expire prior to September 30, 2021 (not applicable if the AEI notifies you of eligibility of new group healthcare coverage or Medicare coverage), employers must send the individual another notice between 15 days to 45 days before the subsidy expires that identifies the expiration date and states that coverage may remain available through unsubsidized COBRA coverage or other coverage, if applicable.
Failure to provide the Notice of Extended Election Period shall be treated as a failure to meet COBRA notice requirements.
Who pays for the cost of the COBRA subsidy?
For the most part, employers will be responsible for the cost of the COBRA coverage for each AEI. Employers who comply with ARPA’s COBRA provisions will be reimbursed through tax credits against their quarterly payroll taxes, for the costs of the subsidized coverage during the Subsidy Period. If the tax credit exceeds the payroll taxes owed, it will be treated as an overpayment and refunded to the employer. The IRS may issue further guidance on how these credits will work.
We have them for you and we have them in Word!
- Model General Notice
- Extended Election Period
- Alternative Notice
- Premium Assistance
- Summary of COBRA ARPA
Insurance services offered through CYCAP Insurance, LLC DBA Cypress Capital. Correspondence, as it relates to insurance services only, is for the purpose of business being conducted through CYCAP Insurance, LLC DBA Cypress Capital. Coverage on your insurance policy cannot be bound, amended, or altered by leaving us a voicemail message, sending an email or by using a contact form on our website. To bind, add, or delete coverage on your policy, you must speak directly to one of our licensed team members. CYCAP Insurance, LLC DBA Cypress Capital is a separately licensed Insurance Agency with the State of Florida and Minnesota and is not owned or controlled by LPL Financial. This information was developed as a general guide to educate plan sponsors, based on the timing of the information at hand, and is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way do we assure that, by using the information provided, plan sponsors will be in compliance with ERISA, DOL or IRS regulations.